Traders appeared increasingly confident that the Federal Reserve could start cutting interest rates as early as September after inflation data fell more than expected in April.
Some analysts, however, are far from convinced about the prospect of imminent rate cuts.
The consumer price index (CPI), a broad measure of how much goods and services cost the coffers, rose 0.3 percent from March, the Labor Department’s Bureau of Labor Statistics said Wednesday. That was slightly below the Dow Jones estimate of 0.4%.
Softer-than-expected data on Wednesday pushed stocks to new record highs and fueled speculation about how soon the Fed might be ready to start cutting interest rates.
Traders are currently pricing in about a 70% chance of a US rate cut in September, according to the CME FedWatch tool. This marks a sharp increase, compared to earlier in the week.
Jerome Schneider, head of short-term portfolio management at PIMCO, said on Thursday that the latest US inflation data confirmed to investors that the possibility of a near-term rate hike is now “off the table”.
“I think contextually, we really have to understand that we’ve celebrated a lower inflation rate, the market has. But in context, at PIMCO we’re thinking specifically about the longer-term trajectory of how the Fed will react to this data,” Snyder told CNBC’s “Squawk Box Europe.”
Traders work on the floor during morning trading at the New York Stock Exchange on May 14, 2024.
Spencer Platt | Getty Images
“Most importantly when you look [at] … what is happening in the CPI and its departments [Personal Consumption Expenditures Price Index]the most widely used gauge of inflation for the US Federal Reserve, remains relatively resilient,” Snyder said.
“In fact, to get below 3% in these fundamentals, we would have to see prints over the rest of the year of 0.2% or lower. Right now, we’re still well above that.”
He added that while the latest inflation data provided some relief, in the context of the Fed’s quick return to its 2% target, “it’s probably unlikely at this point.”
Softer data
Along with the latest US inflation data, the Commerce Department mentionted on Wednesday that retail sales were flat in the month, compared with estimates for a 0.4% increase. The print appeared to indicate that consumer spending in the world’s largest economy had lost some momentum.
“If you put the inflation data with the retail sales data earlier in the week, where it was a decent loss and really weakened discretionary sectors, and that to me tells us a story about a consumer that under the hood is starting to feel impact of these higher interest rates,” Jacob Mitchell, chief investment officer and founder of Antipodes Partners, told CNBC’s “Squawk Box Europe” on Thursday.
“I think probably the market is starting to see softer data coming in, which will make the Fed’s job a little bit easier.”
Asked if the CPI data suggested the Fed was going to cut rates in September, Mitchell said: “Look, I would agree that you didn’t get what you needed for the basics, the services and the corresponding landlord rent.”
He added: “And those two items, look, if we don’t get much weaker goods numbers, then in the second half of the year, core effects will play out, so you’ll see a natural re-acceleration in core CPI.”
— CNBC’s Jeff Cox contributed to this report.
