Fed Rate Cuts in Question As Gasoline-Driven Inflation for March Soars

U.S. inflation for March has surged more than anticipated thanks to soaring gas prices and top-dollar mortgage rates, creating concern that the Federal Reserve may scrap its plans for a rate cut in June. 

U.S. consumer prices increased 3.5% for the 12 months ended in March, according to the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) released on Wednesday. The 3.5% increase for March compares to a 3.2% increase for the previous month.

The primary driver of higher inflation for March was gasoline prices.  

The Federal Reserve’s inflation goal is 2%. 

“Today’s report shows inflation has fallen more than 60% from its peak, but we have more to do to lower costs for hardworking families. Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago,” U.S. President Joe Biden said in a statement on Wednesday. 

Crude oil prices were still ticking slightly upwards on Wednesday, shortly after the CPI release, while overall U.S. stocks plunged on the data, with the Dow losing more than 503 points by the time of writing. 

“Goldilocks has left the building – inflation isn't coming down anymore and rate cut hopes are going to be pushed off even further into the future,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, told Benzinga on Wednesday, adding that the Fed could balk at a rate cut now that consecutive reports of higher-than-expected inflation. Zaccarelli now expects that rate cuts could happen in July or September, and that if inflation remains high, there may be a single rate cut for 2024.  

In an interview with Bloomberg on Wednesday, Glenmede’s Jason Pride described inflation as “the stubborn child that refuses to heed the parent’s call to leave the playground”, warning investors that the likely scenario is two cuts for 2024 and a “higher-for-longer monetary regime”.

By Charles Kennedy for Oilprice.com

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