The core consumer price index came in much cooler than expected in March, easing to a four-year low, while initial claims for jobless benefits rose less than expected last week. After the CPI data, S&P 500 futures remained sharply lower following yesterday's explosive rally.
With President Trump's 90-day reprieve on reciprocal tariffs above 10% — except for China — markets pulled back from the brink of instability. Now the focus turns to the impact of still-significant Trump tariffs on inflation, the labor market and the outlook for Federal Reserve interest-rate cuts, as well as Trump's deals with key trading partners over the next 90 days.
9:28 a.m. ET
Fed Rate-Cut Odds Updated
After the CPI data, markets are now pricing in 21% odds of a rate cut at the May 7 Fed meeting, up from 17% just ahead of the report, according to CME Group's FedWatch tool. Odds of a rate cut by the June 18 meeting have climbed to 83.5% from 74%.
For the full year, markets are on the fence between 100 basis points in rate cuts (51% odds) and 75 basis points in cut (49%) odds.
9:10 a.m. ET
CPI: Soft For Bad Or Temporary Reasons
The CPI data preceded Trump's 25% tariff on auto imports and an expected 25% tariff on pharmaceuticals.
Inflation for new vehicles is expected to rev up, which should boost the price of used vehicles, vehicle maintenance and auto insurance.
Economists predicting the inflation impact of Trump tariffs may not have been factoring in a slide in travel-related prices, but that's not exactly a reason for investors to be bullish.
S&P 500 futures are now off 1.7%, well off their lows before the CPI data, but also well below their highs after an initial, reflexive burst higher on the inflation surprise.
9:00 a.m. ET
Prescription Drug Prices Tumble
Another contributor to the soft inflation data was a 2% drop in prescription drug prices — the sharpest drop on record.
8:51 a.m. ET
Initial Claims
Initial claims for unemployment benefits rose 4,000 to 223,000 in the week through April 5, coming in a touch below 225,000 forecasts.
Continuing jobless claims fell 43,000 to 1.85 million in the week through March 30.
Continuing claims had been trending higher in a possible sign that employers were cutting back on hiring, making it harder for the unemployed to quickly find work. However, the latest data may ease that concern for the moment.
8:42 a.m. ET
Tame Services Prices
Core goods prices fell 0.1%, as prices for used cars and trucks fell 0.7%. Core services prices rose a mild 0.1% as transportation services prices, including airfares, fell 1.4%.
Airline fares fell 5.3% on the month. Hotel and motel prices slid 4.3% on the month, the biggest drop since April 2020. These declines may reflect an early tariff impact on travel demand. But generally, the March report is the last CPI data before tariffs began to ramp up in a major way.
8:40 a.m. ET
S&P Futures Down
S&P 500 futures fell 2%, actually slightly worse than before the 8:30 a.m. economic releases. The 10-year Treasury yield is at 4.31% down 10 basis points from Wednesday's close.
8:34 a.m. ET
CPI Surprise
The CPI unexpectedly fell 0.1% in March, as the 12-month inflation rate slid to 2.4% from 2.8% in February.
The core CPI edged up just 0.1% vs. 0.3% forecasts. That lowered the 12-month core inflation rate to 2.8%, the lowest since March 2021.
CPI Inflation Expectations
Economists expect the overall March consumer price index to edge up 0.1%, lowering the 12-month headline CPI inflation rate to 2.6% from 2.8%, according to Econoday. The core CPI, which strips out volatile food and energy prices, is expected to rise 0.3% on the month, lowering the 12-month core inflation rate to 3% from 3.1%, which would be the lowest since April 2021.
The CPI provides about 70% of inputs, based on weightings, for the Fed's primary inflation rate, the core PCE price index. Most of the other 30% will be reported with Friday's producer price index, including health care services inflation.
Lately, when the CPI has run hot, the PCE inflation has remained tame, and vice versa. So markets may get the wrong initial signal from CPI data.
Initial Claims
Economists expect 225,000 initial claims for unemployment benefits in the week through April 5, up from 219,000 in the prior week.
The focus will also be on the number of people continuing to claim unemployment benefits, which will be reported for the week through March 30. Lately continuing claims have been trending higher, a sign that the unemployed are having a tougher time finding work.
Fed Rate-Cut Odds
After Trump's reciprocal tariffs pause, odds of a Fed rate cut at the upcoming May 7 meeting have pulled back to 17% from as much as 50% intraday on Wednesday, according to CME Group's FedWatch tool. Markets are currently pricing in 74% odds of a rate cut by the June 18 Fed meeting.
For the full year, markets see 79% odds of at least 75 basis points in rate cuts.
S&P 500
S&P 500 futures are pointing down 1.8% ahead of the CPI and jobless claims data, following yesterday's massive 9.5% rally, which was the biggest percentage gain since October 2008.
The S&P 500 finished 11.2% below its Feb. 19 record closing high, still in correction territory.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
