A recently released inflation report raised concerns on Wall Street. The "supercore inflation" reading, which excludes volatile items like food, energy, housing, and rent, is rising rapidly. This reading has been above 8% at an annualized pace for the last three months. Economists are concerned that this type of inflation is not easily controlled by interest rate increases and likely indicates a more long-term problem.
Inflation increased faster than expected in March, fueled by rising shelter and energy costs. The consumer price index rose 3.5%, higher than economists' predictions. Traders have now pushed back the expected date for the first interest rate cut by the Federal Reserve from June to September. This inflation spike is unlikely to prompt the Fed to cut rates anytime soon, as it reinforces the notion that inflation is stickier than previously anticipated.
Fed Governor Christopher Waller believes more time is needed to see evidence of declining inflation before considering rate cuts. He is concerned that inflation may not fall to the Fed's target as expected. The upcoming data on inflation, consumer spending, and wages is being closely monitored by the Fed. Markets speculate that rate cuts may not occur until June or even July. Other Fed officials also express a willingness to cut rates later but emphasize caution.
Inflation remains persistent, with key indicators above expectations. Core CPI rose 0.4% monthly and 3.8% annually, driven by energy and shelter costs. Despite some price declines, such as medical care, inflation remains above the Fed's 2% target. The Fed may delay lowering interest rates until it achieves greater confidence in inflation's decline. Strong job growth and consumer spending, while positive for the economy, also raise concerns about inflation's resilience.
