ING: U.S. inflation curbs chances of Fed rate cut in June

James Knightley, chief economist of ING, wrote that U.S. inflation eliminates the possibility of the Federal Reserve cutting interest rates in June, and September may be the earliest time to loosen policy. The article is as follows:

Inflation in the United States remained at 0.4% for the third consecutive month, more than twice what is needed to bring inflation down to the 2% year-on-year target. Expectations for the Fed to cut interest rates in June have collapsed, and talk that rates will last longer has taken hold, with September being the earliest opportunity for any policy easing.

     Inflation in the U.S. remains disturbingly high

U.S. core consumer prices rose 0.4% month-on-month, beating the consensus estimate of 0.3% - only one forecaster predicted this result, so like last Friday's jobs report, this is another notable upside surprise , will dispel expectations that the Federal Reserve will cut interest rates in June. A 15 basis point rate cut was priced in advance but has now plummeted to just 5.5 basis points. We still have two jobs reports and two CPI reports, but to achieve a rate cut in June, we will likely need to see job growth decline to closer to 100,000 and both core CPI will increase 0.2% month-on-month - the latter It will be released on the day of the FOMC meeting on June 12.

Details show that the monthly core growth rate of 0.4% is accurate to three decimal places at 0.359%, which is not far away from 0.3%, but it is still too hot for the Fed. The ideal monthly growth rate would be 0.17% to get our year-over-year growth down to 2% over time, so we're still running twice as fast as we need to.

Will there be no interest rate cut before September?

The strength was caused by super core services (services excluding energy and housing), which increased by 0.65% month-on-month, of which medical services increased by 0.6% month-on-month, transportation services increased by 1.5% month-on-month (including repair services, which increased by 1.7% month-on-month, and vehicle insurance). month-on-month increase of 2.6%/22.2%). Housing costs increased by 0.4%, energy costs increased by 1.1%, and food prices increased by 0.1%, which means that overall inflation increased by 0.4% month-on-month (0.378% to three decimal places). The good news for car buyers is that both new and used car prices fell, and entertainment product prices and air ticket prices both fell for the first time since November last year.

Given this situation, there will be no interest rate cut in June unless the economic situation reverses quickly. July is also in doubt, meaning September is more likely to be the starting point for any easing, which would limit the Fed to three rate cuts this year.