Washington April 10 2023: As Federal Reserve officials last year started steering the world towards possible interest rate cuts in 2024, they took heart in data showing inflation over many months had collapsed to the U.S. central bank’s 2% target, evidence their policies were curbing a still too-hot economy.
Those downward sloping lines have now reversed through the first quarter of 2024, with new consumer price index data for March showing headline inflation accelerated to a 3.5% annual rate from 3.2% in the prior month, and a separate “core” measure excluding food and energy prices stalled at 3.8%.
The numbers are likely to feed doubt at the Fed that rates can fall any time soon in an economy that continues to grow above trend, produce enough jobs to keep unemployment low, and that has pushed a core of at least four of the 12 Fed officials voting on monetary policy into a skeptical stance.
Investors reacted to the latest inflation data by shifting bets away from an anticipated rate cut in June towards one in September. They also now see the Fed reducing its benchmark overnight interest rate by only half a percentage point this year, down from rate-cut expectations that had been as high as a full percentage point.
“When you start to see month after month of inflation not falling, and tipping up if you look at the six-month changes, I think that has given the Fed pause … There has been a change in sentiment,” said Karen Dynan, a Harvard University economics professor and a non-resident senior fellow at the Peterson Institute for International Economics.
