Fed: Interest rate cut firmly planned for May could start to wobble on inflation reacceleration – Commerzbank
US inflation surprised to the upside in January. Economists at Commerzbank analyze the implications for a possible pivot to interest rate cuts by the Federal Reserve (Fed).
Setback in the disinflationary trend
US consumer prices rose by 0.3% in January compared to the previous month, slightly more than expected. The year-on-year rate fell from 3.4% to 3.1%. The more important core rate, which excludes energy and food, increased even 0.4% in the previous month, also slightly higher than expected. The YoY comparison remained at 3.9%.
The unexpectedly high CPI increase in January is likely to encourage the Fed to wait and see how prices develop before declaring victory over inflation.
Some observers will now be wondering whether the interest rate cut that was firmly planned for May will also start to wobble, especially as the real economy has so far proved to be very robust. We had already considered a cut in March to be premature anyway.
As far as May is concerned, we should wait and see how PCE inflation has developed in January and whether higher price pressure is also evident in February before assessing Fed policy.
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FXStreet Insights Team
FXStreet
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