US Inflation Rebounds in March, Casting Doubt on Timing of Fed Rate Cuts

The latest US inflation figures accelerated consumer price growth for March. However, underlying price increases remained steady. The data further fuels the debate about when the Federal Reserve might start to cut interest rates in its battle against runaway prices.

The closely watched consumer price index (CPI) rose by 3.5% in March annually. This jumped from February's 3.2% increase and exceeded the 3.4% economists forecast. The core CPI figure, which strips out volatile items like food and energy, remained unchanged at 3.8% year over-year.

On a monthly basis, overall CPI rose by 0.4% in March, matching the previous month's rise and again surpassing the 0.3% economists anticipated. The core measure, which excludes volatile items like food and energy to provide a more stable inflation rate, also came in higher than expected at 0.4%, above February's 0.3% growth.

The Federal Reserve has undertaken a series of significant interest rate increases to lower inflation, pushing borrowing costs to their highest level in over 20 years. At their March meeting, officials projected that the central bank would enact 75 basis points of cuts before the end of the year. However, policymakers continue to emphasize the need for clearer evidence that inflation is sustainably easing towards their 2% target, a level considered optimal for a healthy economy.

Recent comments from Fed officials highlight the split in opinions regarding the path of monetary policy. Michelle Bowman, a hawkish Fed Governor, argues it's premature to consider rate cuts and more increases could be needed. Other Fed Presidents echo these sentiments, with Lorie Logan of the Dallas Fed pushing back against any imminent move towards looser policy and Richmond's Thomas Barkin noting the strong jobs market.

In contrast, Chicago Fed President Austan Goolsbee highlighted the need to balance continued rate hikes against potential economic damage.

The release of this latest inflation data has dampened hopes for imminent rate cuts. Prior to the report, traders were factoring in approximately 67 basis points of cuts this year, a sharp reduction from the 150 bps anticipated at the beginning of 2024. US stock futures fell following the report, while yields on the 2-year and 10-year Treasury notes climbed.