U.S. Inflation Stalls, Raising Concerns for Fed and Rate Cut Timeline

U.S. inflation remained unchanged in April, raising concerns for the Federal Reserve that the high pace of price increases might persist longer than expected. This development casts doubt on the timeline for potential interest rate cuts.

The personal consumption expenditures (PCE) price index, a key inflation gauge closely monitored by the Fed, increased by 0.3% last month, matching the unrevised gain in March.

On an annual basis, the PCE price index rose 2.7% in April, in line with economists’ forecasts. However, to achieve the Fed’s 2% inflation target, consistent monthly readings of 0.2% are required.

The Fed has maintained its benchmark interest rate in the 5.25%-5.50% range for the past 10 months, primarily due to stronger-than-expected inflation and labor market data from January to March.

Although April’s job gains and consumer price index (CPI) data offered some respite, with job growth reaching its lowest level in six months and the CPI increasing less than anticipated, the unchanged PCE inflation reading in April raises questions about the timing of potential rate cuts.

The Fed’s aggressive rate hikes since March 2022 have aimed to cool demand and curb inflation. However, financial markets have repeatedly pushed back their expectations for the first rate cut, from March to June and now to September.

The latest PCE data, coupled with the revised gross domestic product figures released on Thursday, which showed a moderation in consumer spending in the first quarter, suggest that the path to achieving the Fed’s inflation target remains uncertain.

In conclusion, the stagnant U.S. inflation in April has raised concerns for the Federal Reserve, as it indicates that the fight against inflation is far from over. This could potentially delay the timeline for interest rate cuts, which are now anticipated to begin in September at the earliest.