US March CPI comes in on the cool side

NEW YORK (Reuters) – U.S. consumer prices barely rose in March as the cost of gasoline declined, but stubbornly high rents kept underlying inflation pressures simmering, likely ensuring that the Federal Reserve will raise interest rates again next month.

The Consumer Price Index climbed 0.1% after advancing 0.4% in February, the Labor Department said on Wednesday. Year to date, the CPI increased 5.0%, the smallest 12-month gain since May 2021. The CPI rose 6.0% on a year-on-year basis in February.

MARKET REACTION:

STOCKS: U.S. stock index futures extended gains and were last up 0.77%, pointing to a strong open on Wall Street BONDS: U.S. Treasury yields fell, with 2-year note last at 3.912, and the 10-year note down at 3.3625%FOREX: The euro extended a gain against the U.S. dollar, last up 0.57%, while the dollar index was off 0.6%

COMMENTS:

QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA

    “It was cooler than expectations by just a bit. Clearly the inflationary pressures are moving in the right direction. The initial reaction in the market was positive across the board. You saw the futures market jump higher and the two-year Treasury yield moved lower on the release of this report.”

    “And this report has not yet digested industry reports suggesting that new leases are coming down across the country, and that is going to have a material effect on CPI. That is going to indicate a further decline in inflation.”

JOE MANIMBO, SENIOR MARKET ANALYST, CONVERA, WASHINGTON, D.C.

“Headline inflation coming down more than expected is backing the view of the Fed being basically one more and done. I think the market was just really cautious ahead of the data, as if it had been hotter than expected it might suggest that June might also be a live meeting. But I think with inflation taking a big step down from 6% to 5%, if that sustains, that could give the Fed leeway to cut rates later this year if we see a sharp slowdown in the economy.”

ANTHONY SAGLIMBENE, CHIEF MARKET STRATEGIST, AMERIPRISE FINANCIAL, TROY, MICHIGAN

“Today’s inflation data is confirmation that inflation trends are moving forward. But from the market’s perspective, it might be getting ahead of itself because I don’t think the Fed will be cutting rates this year. The only way they’re going to cut rates this year is if growth and inflation are deteriorating much more rapidly, which would be bad for stocks. At some point, investors are going to have to grapple with the idea that rates are going to stay higher for longer this year, and that could create some tension for stocks down the road.

“The Fed will go another 25 basis points in May, but that’ll be it. That’s what the market is reacting to today. You’ve seen yields pop lower, two-year’s down, 10-year’s down. That’s the bond market saying that the Fed is almost done raising rates and so all of that is positive that inflation is moving lower.”

THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL LLC, NEW YORK“If they (Fed) paused now on the basis of this data giving them cover to do so and commit to keeping rates elevated, I think they can thread the needle here and do the soft landing that they’ve been hopeful for.”

PETER ANDERSEN, FOUNDER, ANDERSEN CAPITAL MANAGEMENT, BOSTON.”It is very positive, I think we are finally starting to see the cumulative effects of the relentless rate hikes that we have all suffered through for over a year now.””The Fed is certainly not on autopilot when it comes to future hikes and I believe as a result of data like this, the Fed’s next meeting is anything but certain as to whether or not they will raise rates.”

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, CHARLOTTE, NORTH CAROLINA

“You have to consider what was going on prior to the number. Big picture there were just a lot of concerns about recession, about inflation continuing to remain hot, almost a stagflationary type of environment which is maybe the worst-case scenario for financial markets. More recently, we have kind of softened the recession piece with payrolls coming in at somewhat solid levels and now we are somewhat solving for the inflation remaining sticky while the economy slows piece of it, the stagflationary piece of it, by showing that although it is not exactly back to the Fed’s target it is slowly starting to edge lower. It seems like the way things are headed is for probably a more pronounced economic slowdown into the back half of the year, but it seems more and more as if that will also come with inflation also slowing down somewhat quickly in the back half of the year.

“Even now, you have to take these numbers with a little bit of a grain of salt from the standpoint of at least the core will start to feel some of the impact of energy prices kind of ticking back up and that can be something that kicks off a new round of increases that feed into the core because energy is an input costs into so many various businesses and services that we have to watch that a little bit carefully given what is going on there with OPEC recently cutting supply. All of this to say that inflation remains at levels that are probably higher than what the Fed feels comfortable with and for now, probably makes another rate hike the base case unless some new financial risk clears up.”

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN“May is a maybe, not a definitely. Wages aren’t reaccelerating. Supercore is contained. We’ll likely see weakness in retail sales and industrial production this Friday, which can further tilt the Fed towards a pause.”

RANDY FREDERICK, MANAGING DIRECTOR OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS

“Most of these numbers either came in on target or slightly better. The markets are looking at the combined reports as a net positive overall.”

“The data was a little bit better than what was expected, so that tells me that the bond market is saying that the probability of this next rate hike has decreased just a little bit.”

“The other number that’s important is the PPI number that comes out this week. That’s not normally one that moves markets a lot, but I think in this environment we’ll be looking for the PPI to confirm that inflation is indeed moderating.”

“The earnings season is not expected to be all that terrific. When the quarter ended, the expectations for year over year earnings was that it would be down by about 6.6%. That’s a pretty substantial fall and it would be the worst quarter that we’ve had since going all the way back to Q2 of 2020, which of course was right when we had all of the lockdowns.”

“So far no big change yet in Fed bets. That will probably change a little bit today as people digest this data, maybe even within the next half an hour or so.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The topline is good news but the core is still elevated. Inflation is going in the right direction but the fact that core remains stubbornly high suggest that the Fed is likely to raise interest rates by 25 basis points in May. It weakens the argument for a pause.”

“Futures are going up based on the topline number, that’s what markets are focusing on.”

“Inflation is cooling down. (The report) indicates that structural inflation is coming down and transitory inflation is staying high.”

(Compiled by the Global Finance & Markets Breaking News team)