The annual growth rates of the US February CPI and core CPI exceeded expectations, reaching 3.2% and 3.8% respectively, indicating that inflationary pressures still exist. The CME FedWatch tool shows a 99.0% probability that the Federal Reserve will maintain interest rates at the next FOMC meeting, while the probability of a rate cut in May is only 11%.
The US Bureau of Labor Statistics (BLS) released the latest CPI report for February, following the inflation data exceeding expectations in January. This is the second consecutive month of higher-than-expected inflation. The data shows:
– The annual growth rate of the US February CPI is 3.2%, higher than the expected 3.1%; the monthly growth rate is 0.4%, on par with expectations and higher than the previous value of 0.3%.
– The annual growth rate of core CPI is 3.8%, higher than the expected 3.7%; the monthly growth rate is 0.4%, higher than the expected 0.3%.
This data reflects the continued inflationary pressure in the US economy, posing a challenge to the Federal Reserve’s relaxation of monetary policy.
Probability of rate cut in May drops to 11%
As a result, the market believes that the probability of a short-term rate cut by the Federal Reserve has further decreased, almost ruling out the possibility of a rate cut before June. According to the CME FedWatch tool, the probability of the Federal Reserve keeping interest rates unchanged in the range of 5.25% to 5.50% at the FOMC meeting in one week is 99.0%, with only a 1.0% chance of a 1-basis-point rate cut. The probability of keeping rates unchanged in May is 88.9%, while the cumulative probability of a 1-basis-point rate cut is 11%, significantly lower than the 52.2% a month ago.
Experts: Low probability of rate cut by the Fed in the short term
According to the Department of Labor’s report, energy and housing costs accounted for over 60% of the overall price increase in February. Energy costs rose by 2.3%, with gasoline prices increasing by 3.8%. Housing costs, which account for about one-third of the CPI weight, rose by 0.4%, with owner’s equivalent rent (OER) rising by 0.4%.
Note: Owner’s equivalent rent (OER) is a major component of the CPI housing category, accounting for 23-24% of the weight, making it a key observation item in US CPI data.
Robert Frick, corporate economist at Navy Federal Credit Union, stated that although Federal Reserve officials have hinted in recent weeks that there may be rate cuts at some point this year, they have also expressed caution about easing too early to combat high inflation. After two consecutive months of CPI exceeding expectations, Paul Ashworth, Chief North American Economist at Capital Economics, stated that the most likely timing for a rate cut would be in June.
Russell Price, Chief Economist at Ameriprise Financial Services, believes that the inflation issue may persist for several months, which could delay the Federal Reserve’s first rate cut beyond expectations, with the most likely timing being in June.