Inflation: March CPI up as Federal Reserve weighs interest rate cuts

Inflation rose again in March from a year earlier — another sign that the economy doesn’t need high interest rates to fall anytime soon.

New data from the Bureau of Labor Statistics on Wednesday showed that prices rose 3.5% between March 2023 and March 2024. That’s a slight increase from the 3.2% annual figure recorded in February. Prices also increased by 0.4 percent between February and March. Stock futures sank on the news.

“You can say goodbye to an interest rate cut in June,” Greg McBride, chief financial analyst at Bankrate, wrote in an analyst note. “Inflation has been higher than expected, the lack of progress towards 2 percent is now a trend.”

The main drivers of inflation – housing and energy costs – told a familiar story and together accounted for more than half of the monthly increase in all items in the consumer price index . Rent costs rose 0.4 percent in March, a slight improvement from February. But they are still up 5.7 percent from a year ago.

The energy index rose 1.1 percent in March, down from 2.3 percent in February, but still up 2.1 percent from a year ago. Auto insurance costs also contributed to this hot report.

Policymakers will also integrate the report to get more accurate readings that will help them get a clearer picture of how inflation is spreading through the economy. For example, a key metric that excludes the most volatile categories like food and energy rose 0.4 percent in March, unchanged from the previous two months. That won’t provide much comfort to officials who are particularly focused on areas of the economy where inflation can become most stubborn.

Likewise, managers like to compare data month to month – rather than year to year – because the economy can change so quickly. Here too, the Fed saw modest progress, with prices rising at the same pace in March as in February.

It’s the latest update for Federal Reserve officials seeking progress in their fight to slow rising prices. The central bank has pushed interest rates to their highest level in 23 years, and officials say they plan to cut them three times this year. But they also want more data before acting.

So far, reports have signaled no urgency to lower rates. The Fed began the year strengthened by six months of encouraging data and notable progress since inflation hit a 40-year high in mid-2022. But prices have moved in the other direction in 2022. January and February were warmer than expected and disrupted the Fed’s remarkable run of good news.

NOW the question is whether the start of 2024 has simply brought predictable twists and turns – or whether the Fed is facing a bigger problem.

At a news conference last month, Fed Chairman Jerome H. Powell said the task of returning inflation to normal levels would still be difficult.

“Now here are some bumps, and the question is: are they more than bumps? Powell said on March 20. “And we just don’t know – we can’t know. “We are therefore approaching this issue with caution.”

But financial Markets also fear that uncertainty could interfere with cuts this year. Stocks fell last week after Minneapolis Fed President Neel Kashkari said that while he had lowered his forecast, that could change if progress stalls.

“It would make me question whether we actually need to reduce these rates,” he said.

In recent years, inflation has been fueled by different factors. First, botched supply chains have driven up prices on sofas, electronics and more. Then, historic levels of government stimulus boosted consumer demand, even as other sectors of the economy — particularly service industries like restaurants and hotels — were still recovering from the pandemic. After that, Russia’s invasion of Ukraine in 2022 shook global energy markets, sending gas prices soaring to more than $5 a gallon that summer.

More recently, housing costs have kept inflation high. Many economists say official consumer price index statistics are delayed and don’t take into account real-time measurements that show falling rents in many places. But policymakers still don’t know why this change hasn’t happened yet. And the risk is that the longer this change takes, the harder it will be to return headline inflation to normal levels.

All of these factors caused the Fed to increase borrowing costs after inflation soared. It is aims to slow the economy by making it more expensive to get a mortgage, take out a car loan or grow a business. And while virtually all economists expected an all-out effort to tip the economy into a recession, the opposite happened: job growth and consumer spending held up. at a high level, while inflation has generally eased.

But the situation has not yet completely returned to normal, and Fed officials are quick to warn that victory is not guaranteed. The Fed’s goal is to bring inflation down to 2%, using its preferred inflation measure. This measure is different from the one released Wednesday by the Bureau of Labor Statistics, and it recorded at 2.5 percent in February compared to the previous year.

However, central bankers will not necessarily wait for inflation to reach their 2% target to cut interest rates for the first time in years. The idea is that there has been enough progress for those responsible to slowly take their foot off the brake. But policymakers are still looking for complete assurance that inflation continues to fall – and they will continue on this path.

Meanwhile, central bankers have planned three interest rate cuts this year. The financial markets are aiming for a first decline in June. But the chances of that being pushed back until later in the summer — or beyond — increase as officials find themselves waiting for better news month after month.

Speaking to reporters this month, Cleveland Fed President Loretta Mester highlighted why it takes time to make a decision.

“I don’t want to prejudge,” Mester said. “I just need to see more evidence.”

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Sara Adm

Aimant les mots, Sara Smith a commencé à écrire dès son plus jeune âge. En tant qu'éditeur en chef de son journal scolaire, il met en valeur ses compétences en racontant des récits impactants. Smith a ensuite étudié le journalisme à l'université Columbia, où il est diplômé en tête de sa classe.Après avoir étudié au New York Times, Sara décroche un poste de journaliste de nouvelles. Depuis dix ans, il a couvert des événements majeurs tels que les élections présidentielles et les catastrophes naturelles. Il a été acclamé pour sa capacité à créer des récits captivants qui capturent l'expérience humaine.
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