March Inflation Slows To 5%, Core Ticks Higher As Fed Rate Challenge Intensifies
Markets are still betting on a May Fed rate hike despite slowing headline inflation rates and a simmering bank crisis.
Markets are still betting on a May Fed rate hike despite slowing headline inflation rates and a simmering bank crisis.
Updated at 8:47 am EST
U.S. inflation slowed notably again in March, data from the Commerce Department indicated Wednesday, although core consumer prices edged modestly higher, suggesting the Federal Reserve's effort to tame inflation pressures continues to deliver mixed results.
The headline consumer price index for the month of March was estimated to have risen 5.0% from last year, down from the 6% pace recorded in February and coming in just inside the Street consensus forecast of 5.1%.
On a monthly basis, inflation was up 0.1%, the BLS said, compared to a 0.4% reading in February, the June peak of 1.3% and the Street forecast of a 0.2% acceleration.
However, so-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.4% on the month, and 5.6% on the year, the report noted, with the key monthly reading matching Street forecasts and the annual reading rising 0.1% from last month's tally.
U.S. stocks were trading firmly higher following the data release, with futures contracts tied to the S&P 500 indicating a 30 point opening bell gain and those linked to the Dow Jones Industrial Average suggesting a 213 point advance. The tech-focused Nasdaq is priced for a 115 point gain.
Benchmark 10-year Treasury note yields were 8 basis points lower at 3.368% in volatile trading while 2-year notes were pegged at 3.926%, after hitting a session high of 4.075% prior to the data release.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.4% lower at 101.702.
The CME Group's FedWatch is now pricing in a 68.5% chance of a 25 basis point Fed rate hike on May 3, unchanged from before the data release, with the odds of a pause in June pegged at 67%.
Bets on a Fed rate cut in July, however, have accelerated to around 68% now that inflation appears to have slowed for a sixth consecutive month and bets on a near-term recession have quickened since the collapse of Silicon Valley Bank last month and the subsequent tightening of loan conditions and capital costs for the country's small and medium-sized businesses.
A key report from the Nation Federation of Independent Business, published Tuesday, also indicated a slowdown in hiring plans, the weakest expansion plans since 2009 and a pullback in selling prices.
Meanwhile, activity in the most important sector of the economy slowed notably last month, according to data from the Institute of Supply Management's benchmark survey, with two important sub-components -- measuring employment and prices paid -- indicating cooling inflation pressures heading into the spring and summer months.
The ISM's March survey of manufacturing activity, meanwhile, was pegged at 46.3 -- well below the 50 mark that separates growth from contraction -- with Bank of America's weekly "Flow Show" report noting that readings below 45 have preceded every U.S. recession for the past seven decades.
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