U.S. inflation pressures quickened again last month, with core price pressures also rising past Wall Street forecasts, a reading that will cast further doubt on market bets for a June interest rate cut from the Federal Reserve.
The headline consumer price index for March was pegged by the Commerce Department at 3.5%, rising from the prior month's tally of 3.2% and coming in ahead of Wall Street's 3.4% consensus forecast.
On a monthly basis, inflation edged 0.4% higher, matching the 0.4% gain in February but also coming in ahead of Wall Street's 0.3% forecast.
So-called core inflation, which strips out volatile components like food and energy, held at 3.8%, the lowest in more two years but higher than Wall Street's 3.7% forecast. The monthly reading of 0.4% also topped Wall Street forecasts and matched the February reading.
The Fed tracks core inflation pressures as part of its price-stability mandate, and the year-on-year gains remain nearly double its preferred target of 2%.
"Today’s crucial CPI print has likely sealed the fate for the June FOMC meeting with a cut now very unlikely," said Seema Shag, chief global strategist at Principal Asset Management.
"This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip," she added. "In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making."
U.S. stocks turned sharply lower following the data release, with the S&P 500 falling 54 points, or 1.04%, in late-morning trading and the Dow slumping 450points. The rate-sensitive Nasdaq was down 174 points, or 1.07%.
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Benchmark 10-year Treasury note yields surged 15 basis points following the data release to change hands at 4.499% while 2-year notes were pegged at 4.895%, around 12 basis points higher from prior to the data release.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.94% higher at 105.129, the highest since November 14.
Last week, the Labor Department said 303,000 new jobs were created over the month of March, a bigger-than-expected overall tally that spooked investors concerned about the impact of rising wages on inflation.
However, the report also noted that average hourly earnings growth was largely in line with Wall Street forecasts, giving rise to bets that the economy was absorbing the new hires without a corresponding spike in wage gains.
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The New York Fed's March survey of consumer sentiment, meanwhile, noted that while year-ahead inflation expectations remained stuck at 3%, Americans were hopeful for a modest easing of price pressures over the longer term.
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The CME Group's FedWatch now suggests only a 20.5% chance of a June rate cut, down from around 51% prior to the data release, with markets now reducing their overall tally for 2024 rate reductions to two from three.
"Is it time to say goodbye to 2024 rate cuts? Quite possibly," said Giuseppe Sette, president at Toggle AI.
"As a rule, the Fed has always kept rates above inflation, short of a recession," he added. "With both headline and core inflation hovering in a stable orbit around 3.5%, and strong payroll numbers, the hawks in the Fed will have plenty of ammunition to push rate cuts in the future."
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