(Reuters) -The U.S. consumer price index was unexpectedly unchanged in May on cheaper gasoline, but inflation likely remains too high for the Federal Reserve, which concludes its regular policy meeting later on Wednesday, to start cutting rates before September.
The flat reading reported by the Labor Department on Wednesday followed a 0.3% increase in April. In the 12 months to May, the CPI rose 3.3%, after rising 3.4% in April. Economists polled by Reuters had forecast the CPI to rise 0.1% and rise 3.4% on an annual basis.
Excluding volatile food and energy components, the CPI rose 0.2% in May, less than the 0.3% increase in April. Year on year, the core CPI rose 3.4%, the smallest 12-month increase since April 2021, after rising 3.6% in April. Inflation remains above the US central bank’s 2% target.
MARKET REACTION:
STOCKS: US stock index futures gained up to +0.72%, pointing to a strong open on Wall Street. BONDS: 10-year US Treasury yields fell to 4.293% and two-year yields fell to 4.71%FOREX: The dollar index continued its decline to -0.7% and the euro extended its early rise to +0, 74%
COMMENTS:
LINDSAY ROSNER, HEAD OF MULTISECTOR INVESTING, GOLDMAN SACHS ASSET MANAGEMENT (email comments)
“It would take an extremely soft CPI print to change the Fed’s course in July after a strong wages report last week. We are confident that today is a no-go meeting and that the CPI figure was not weak enough to change our view on the July meeting. Even though September is on the table, today should have seen the first of a handful of inflation data prints go well, and it did. However, cooling inflation against the backdrop of the heat of summer remains a challenge. Let’s see what the Fed predicts this afternoon. This is good news, but we will need more of it.”
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK
“It certainly appears that the trend in inflation remains our friend, working its way down and surprising the Street and causing futures to rise while 10-year bond yields fall. So that will ultimately work to the Fed’s advantage.
“The dot plots have probably already been voted on and we think it’s more likely there will be two rate cuts rather than just one in 2024, but we still think we’ll get a 25 basis point cut every quarter.” until mid-2026.”
“This raises the possibility that investors will be optimistic that the market will see lower interest rates by the end of the year. Investors are breathing a sigh of relief and as we see risky assets rally, we will likely eventually see growth-oriented sectors also show strength when the market opens in an hour.”
CHRISTOPHE BOUCHER, CHIEF INVESTMENT OFFICER, ABN AMRO INVESTMENT SOLUTIONS, PARIS (told the Reuters Global Markets Forum)
“The fact that today’s CPI numbers are not a surprise will strengthen the case for a first cut in September… so potentially US yields will adjust to the downside, putting downward pressure on the dollar.”
“Depending on the different contributions because the remaining shelter component contaminates the overall CPI figures. Without shelter, the persistent CPI accelerates again for a few months so that we see one or two maximum cuts in 2024.”
MICHAEL BROWN, MARKET ANALYST, PEPPERSTONE, LONDON
“The May US CPI report is one that should give the FOMC some confidence in the disinflationary process back to the 2% target, with headline CPI unchanged on a MoM basis for the first time since last June. Additionally, core CPI continued to decline year-over-year, reaching a more than three-year low of 3.4%.”
“While such data will support the view that April’s cooler price data was not a one-off, it is unlikely that the FOMC will be confident enough on its own to make a rate cut yet, as the next FOMC decision will come later. Today.”
“Nevertheless, the data reduces the chances of an aggressive shift in Chairman Powell’s rhetoric at the post-meeting press conference, even though the dot plot is likely to show an average expectation of 50 basis points (from 75 basis points) of cuts this year. almost makes no difference, now price cuts are the most likely outcome, in line with our baseline expectation, with cuts starting in September, followed by another 25 basis point cut in December.”
BRIAN JACOBSEN, CHIEF ECONOMIST, WEALTH MANAGEMENT ANNEX, MENOMONEE FALLS, WISCONSIN
“The leading track was flat, but there was a lot of uncertainty around it. The key figure, which is more signal than noise, was below consensus. After three months off track, the disinflation bus is back on track to 2%.”
(Compiled by the Global Finance & Markets Breaking News team)
