US Inflation Slightly Weaker Than Forecast In April

US Inflation Slightly Weaker than Forecast in April

The US Inflation Slightly Weaker Than Forecast In April, according to the latest data, boosting Treasuries and Wall Street stocks as investors gained confidence that the Federal Reserve’s interest rate hikes are bringing price increases under control.

The Consumer Price Index (CPI) declined to an annual rate of 4.9%, the lowest level since April 2021, compared to economists’ expectations of 5%. The headline figure was affected by lower airline fares, though inflation remained strong in some areas, such as used car prices. Core inflation, which excludes more volatile food and energy costs, dipped slightly to 5.5% year-on-year but has remained stubbornly high for the past few months.

The data prompted demand for bonds and stocks as investors grew more optimistic that the Fed would not need to make further rate hikes. The yield on the two-year Treasury, which tracks rate expectations, fell from 4.08% to 3.97%, while the S&P 500 rose by 0.8% at the New York open.

Despite the recent dip, price increases have slowed significantly from last summer’s 40-year highs. Last week, Fed Chair Jay Powell declared that “we’re getting close or maybe even [finished]” with interest rate hikes. The central bank’s benchmark rate has risen from close to zero at the start of last year to a range of 5% to 5.25%.

While investors have long speculated that a pause in the Fed’s campaign to lower inflation would be followed by a string of rate cuts, recent data releases have highlighted the strength of inflationary pressures. The labor market remains hotter than expected, and an alternative measure of core inflation also came in stronger than forecasts late last month.

Futures markets suggest that investors have scaled back their expectations for how quickly the Fed will pivot to rate cuts since the jobs data, but still see a strong likelihood of cuts by the end of the year. However, Kevin Cummins of NatWest Markets cautioned that “the April data will not be definitive” for deciding the Fed’s next steps, as another month of CPI data will be published shortly before its next policy meeting.

Investors and policymakers will also pay attention to updated figures on producer price inflation, to be published on Thursday, and consumer inflation expectations on Friday.

In conclusion, the latest data showed a slightly weaker-than-expected US inflation rate in April, boosting Treasuries and Wall Street stocks as investors gained confidence that the Federal Reserve’s interest rate hikes are bringing price increases under control. However, policymakers and investors will continue to monitor the data closely to determine the Fed’s next steps.

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