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Market Analysis
Despite Higher than Expected CPI, Traders Anticipate June Rate Cut
Despite higher-than-expected inflation in February, traders remain confident that the Federal Reserve will cut interest rates in June.
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Inflation in the United States continued to rise in February, with the Consumer Price Index (CPI) increasing by 0.4 percent, exceeding economists’ expectations. Despite this, according to the CME FedWatch Tool, traders remain confident that the Federal Reserve will begin cutting interest rates in June as they adjust their expectations based on the current economic conditions and the potential impact on the central bank’s monetary policy decisions.
US CPI Rose 0.4% in February, Higher than Expected
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.4 percent in February, following a 0.3 percent increase in January.
Over the past 12 months, the index increased by 3.2 percent before seasonal adjustment. The shelter and gasoline indexes mainly contributed to the monthly increase, accounting for over sixty percent.
The energy index saw a 2.3 percent increase in February, with all component indexes rising, while the food index remained unchanged, with some components increasing and others decreasing.
The core CPI rose by 0.4 percent in February, driven by shelter, airline fares, motor vehicle insurance, apparel, and recreation increases. Over the last 12 months, this index increased by 3.8 percent. In contrast, the energy index decreased by 1.9 percent for the 12 months ending February, while the food index rose by 2.2 percent over the same period, with the food at home index increasing by 1.0 percent
Traders Remain Certain of Rate Cut in June
Robert Pavlik, senior portfolio manager at Dakota Wealth, predicts that the Federal Reserve will implement three rate cuts throughout the year, with the first one expected to occur in June. This forecast aligns with the current market sentiment, as traders perceive a 62% chance of the first rate cut taking place in June, according to the CME FedWatch Tool. However, this percentage has slightly decreased from the previous figure of 71%.
Do you agree with the consensus that the Fed will start cutting interest rates from June? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
