Fed Rate Cut Expectations Unwind After Hot March Inflation Report
Futures Markets Adjust as June Rate Cut Looks Less Likely
The March inflation report has led to a shift in expectations for Federal Reserve rate cuts, with a reduction in June appearing increasingly unlikely. The consumer inflation rate increased by 3.5% last month, surpassing expectations and prompting a reevaluation of future rate cuts. The futures markets now reflect only 40 basis points of cuts for the year, down from the 150 basis points initially anticipated in 2024.
Goldman Sachs has adjusted its forecast, delaying the first rate cut from June to July and predicting two cuts in 2024. UBS is even more cautious, pushing back the expected first cut to September. The unexpected inflation data has raised concerns for the Fed, challenging their confidence in reaching the 2% target.
U.S. Producer Prices Report Awaited for Further Clarity
Investors are awaiting the release of U.S. producer prices data for March to gain a clearer understanding of inflation trends. The headline figure is expected to show a 2.2% increase, while the core figure, excluding volatile items, is projected to remain elevated at 3.8%. These numbers will provide crucial insights into the economic landscape and potential future rate adjustments.
ECB Meeting and Earnings Season in Focus
The European Central Bank is convening for a rate-setting meeting amid concerns of economic weakness and declining inflation. While rates are expected to remain unchanged, all eyes are on President’s press conference for hints of a potential rate cut in June. The earnings season is also kicking off, with major banks set to release their first-quarter results. Analysts are hopeful for positive earnings growth despite uncertainties in the market.
Market Reactions and Oil Prices Amid Middle East Tensions
Market reactions to the inflation data have been mixed, with U.S. stock futures showing little change as investors await the PPI release. Oil prices have edged higher due to ongoing tensions in the Middle East, threatening oil supplies from the region. The situation in Gaza and potential involvement of Iran add further complexity to the geopolitical landscape.
