Earlier this week, the Bureau of Labor Statistics (BLS) released their Employment Situation Summary for March that saw the US add 303,000 jobs. This marked the highest monthly addition in fifteen months and continues what is starting to shape up as a historically significant year with respect to job additions. This jobs report, which points to an economy that shows no signs of slowing down, was another blow to the Fed’s plan of making three rate cuts in 2024.
In what has been a consistent theme during each of Chairman Jerome Powell’s press conferences, the Fed notes that it continues to await data that provides them with the necessary confidence to begin embarking on a rate-cutting regime. Unfortunately, this morning’s Consumer Price Index (CPI) release from the BLS will be of little help on this front, as inflation accelerated more than expected, exceeding estimates and calling into question the likelihood that the three rate cuts many had been expecting will be realized in 2024.
The CPI climbed 3.5% (before seasonal adjustment) on a year-over-year basis, marking the 36th consecutive month of the annual change in CPI being above 3% and the highest level since September of last year. Compared to February 2024, the CPI increased for the second consecutive month (rising 0.4% in March), led mainly by energy (up 1.1%) and services (up 0.5%). Within the two aforementioned expenditure categories, gasoline and transportation services realized the largest increase, climbing 1.6% and 1.5%, respectively.
Core CPI, which excludes volatile food and energy costs, also beat estimates in March, increasing 0.4% versus last month and rising 3.8% versus last year (above the expected 0.3% and 3.7%, respectively). If we exclude shelter costs from this gauge (otherwise known as ‘supercore’ CPI), March witnessed notable increases of 0.7% month-over-month and 4.8% compared to last year.
Just last week, Minneapolis Federal Reserve Bank President Neel Kashkari questioned if rate cuts would happen at all this year if they continue to see inflation data moving “sideways”. After this morning’s release, with inflation flexing how sticky it truly is, that thought has catapulted into the mainstream. The hopes for a June rate cut have evaporated, and it’s safe to say the door on three rate cuts in 2024 has gone from open to barely ajar (if not closed). The Fed will continue to await data that can generate consensus and confidence as markets adjust to this new reality.
