The April inflation data released by the US on Wednesday cooled down more than expected, making US stock market traders seem increasingly convinced that the Federal Reserve may start cutting interest rates as early as September.
However, some analysts are unsure about the prospects of cutting interest rates soon.
The US Department of Labor Statistics (BLS) reported on Wednesday that the US Consumer Price Index (CPI) rose 0.3% month-on-month in April compared to March, slightly lower than the 0.4% increase estimated by the market.
Weaker-than-expected CPI data drove the US stock market to a record high on Wednesday and sparked speculation about how long the Federal Reserve is preparing to start cutting interest rates.
According to CME's US Federal Reserve's observation tool, traders currently expect the possibility that the US will cut interest rates in September to be about 70%. Compared to earlier this week, the probability of this prediction has increased dramatically.
Jerome Schneider, head of short-term portfolio management at Pacific Investment Management (PIMCO), said on Thursday that the latest US inflation data confirmed to investors that the possibility of a recent rate hike is now “not under consideration.”
Schneider said, “I think from a more specific perspective, we have to really understand that we're already celebrating lower inflation rates, and the market is already doing that. But what we're considering is the long-term trajectory of how the Federal Reserve will respond to these data.”
Schneider said, “More importantly, take a close look at the PCE inflation indicators that the CPI and the Federal Reserve pay more attention to. The specific sub-indicators of these data remain relatively elastic.”
He said, “In fact, to keep these core inflation figures below 3%, we will have to see readings of 0.2% or less for the rest of the year. Today, we're still far above that level.”
He added that while the latest inflation data provided some relief, against the backdrop of the Federal Reserve quickly returning close to the 2% target, “it's probably not likely right now.”