Traders work on the floor of the New York Stock Exchange during early trading on May 14, 2024.
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After inflation data cooled more than expected in April, traders appear increasingly confident that the Federal Reserve could begin cutting interest rates as soon as September.
However, some analysts are far from convinced about the prospect of an imminent rate cut.
The U.S. Department of Labor’s Bureau of Labor Statistics reported Wednesday that the Consumer Price Index (CPI), a broad measure of the price of goods and services at the cash register, rose 0.3% from March. That was slightly lower than the 0.4% forecast by Dow Jones.
Weaker-than-expected data on Wednesday pushed stocks to new highs and fueled speculation about when the Federal Reserve might be ready to start cutting interest rates.
Traders now see about a 70% chance of a U.S. interest rate cut in September, according to the Associated Press CME Group Fed Watch Tool. That marks a sharp increase compared with earlier in the week.
Jerome Schneider, head of short-term portfolio management at PIMCO, said on Thursday that the latest U.S. inflation data confirmed to investors that a near-term interest rate hike was now “off the table.” .
“I think from a more concrete perspective, we have to really understand that we have celebrated lower inflation and so have the markets. But, in the specific context, at PIMCO, we are specifically considering linking The long-term trajectory of how the federation will respond.
“More importantly, when you look at what’s happening with the consumer price index and the Fed’s more common measure of inflation, the personal consumption expenditures price index, it’s remained relatively resilient,” Schneider said.
“In fact, to get these core numbers below 3%, we would have to see numbers of 0.2% or lower for the rest of the year. Right now, we’re still well above that.”
He added that while the latest inflation data provided some relief, “that may not be possible at this time” against the backdrop of the Fed’s rapid approach to its 2% target.
Data is soft
In addition to the latest U.S. inflation data, the Commerce Department report Retail sales on Wednesday were unchanged from the month, compared with expectations for a 0.4% rise. Reports appear to suggest consumer spending in the world’s largest economy has lost some steam.
“If you put the inflation data from earlier this week together with the retail sales data, that was a pretty good miss and really weakened the discretionary area, and to me that tells us a story about consumers. “They’re starting to feel the impact of these high interest rates,” Jacob Mitchell, chief investment officer and founder of Antipodes Partners, told CNBC’s “Squawk Box Europe” Thursday. “
“I think the market may start to see softer data coming, which will make the Fed’s job a little easier.”
Asked whether consumer price index data suggested the Fed would cut interest rates in September, Mitchell responded: “Look, I agree that you’re not getting what you need in terms of critical parts, services and owner-equivalent rent. .
He added, “Look, those two factors, if we don’t have a significant decline in merchandise volume, will have a fundamental effect in the second half of the year, so you’ll see a natural re-acceleration in the core business. Consumer Price Index.”
—CNBC’s Jeff Cox contributed to this report.
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