According to data released by the U.S. Department of Labor on the 10th, as a key indicator to determine the level of inflation in the United States, the U.S. consumer price index (CPI) rose 0.4% month-on-month in March, the same increase as in February, but rose by 3.5% year-on-year, an increase of 0.3 percentage points from February, exceeding market expectations.
The two-year Treasury yield, which moves with interest rate expectations, jumped sharply to 4.97% in late trading following the release of the data. Equities fell in response, with the S&P 500 closing down nearly 1%, or about 9 out of every 10 stocks.
At the same time, analysts believe that the accelerated rebound in US CPI further indicates that inflation is far more stubborn than expected, and the Fed's progress in curbing inflation may be stalling, so the market has postponed expectations for the Fed's interest rate cut in the summer.
△ Screenshot of the report on the website of the Financial Times
Inflation is more stubborn than expected
For the Fed, which had already planned to open the channel for interest rate cuts within the year, this time it miscalculated again.
I say "again" because the current stubbornly high inflation is the worst consequence of the Fed's worst miscalculations.
As early as the outbreak of the new crown epidemic in 2020, the United States began to pursue a flood of monetary and fiscal policies, resulting in a serious imbalance in demand far exceeding supply in the face of the uncontrolled epidemic and hindered economic activity, which led to higher inflation and deficits. Although some economists have long warned about inflation risks, the Fed and the Biden administration have been clinging to the "inflation transitory" theory until the money-throwing policy is unsustainable.
In response to the high inflation it has created, the Fed raised interest rates 11 times in a row from March 2022 to July 2023, pushing interest rates to their highest level in 23 years. Such a ruthless move did pull inflation down from the previous peak of 9.1%, but since the beginning of this year, the US inflation level, which once fell below 3%, has rebounded again.
The Financial Times reported that the March CPI report marked the third consecutive month of higher-than-expected inflation. And higher-than-expected inflation data for January and February have already raised concerns among rate-setters that inflation will prove too stubborn to allow them to cut rates as soon as expected.
△ The Financial Times website reported: The Federal Reserve and the market had expected two or three interest rate cuts this year. Stock market traders had previously thought that a rate cut starting the summer was almost inevitable, but after the April 10 report, their bets on the timing of the rate cut halved from around 98% to 50%.
As inflation rebounds, many influential industry leaders and economists who have long predicted that the U.S. economy will experience storms and hurricanes may ultimately be right.
JPMorgan Chase CEO Jamie Dimon is one of them, and his annual shareholder letter to shareholders this week highlighted "persistent inflationary pressures" and expressed doubts about whether the U.S. economy can achieve a soft landing.
Economists at Bank of America said in a report released after the release of the CPI report on the 10th: "All in all, the report is frustrating for the Fed and the prospect of a rate cut in June." "Inflation is proving to be tricky. ”
△ Screenshot of CNN report
Greg Darko, chief economist at Ernst & Young, recently said that it is undeniable that stronger inflation data does put more pressure on policymakers, forcing them to possibly maintain a higher monetary policy stance for longer.
Fed officials share the same concerns. The minutes of the Federal Reserve meeting released on the 10th showed that "participants were generally concerned about the uncertainty of the persistence of high inflation and said that the recent data did not strengthen their confidence that inflation will continue to fall to 2%."
△ Screenshot of the report on Yahoo Finance's website
Some Fed officials have issued new warnings that they expect fewer rate cuts in 2024 if inflation continues to rise and the economy continues to accelerate.
Atlanta Fed President Rafael Bostic has scaled back the number of rate cuts this year to one, and he cannot rule out the possibility that the rate cut may have to be postponed further, nor does he rule out the possibility that there will be no rate cut at all in 2024.
△ Screenshot of Yahoo Finance website report (Atlanta Federal Reserve Bank President Bostic)
Dallas Fed President Lori Logan said: "I think it's too early to think about cutting rates. ”
Fed Governor Michelle Bowman also expressed concern, and she even said that the Fed may need to consider raising interest rates again at future meetings if progress in reducing inflation stalls or even reverses.
△ Screenshot of the report on Yahoo Finance's website (the title picture is Dallas Federal Reserve Bank President Lori Logan)
Former U.S. Treasury Secretary Summers also believes that "[the Fed] must seriously consider the possibility of the next rate hike rather than a rate cut." He added that a rate cut in June "would be a dangerous and serious mistake."
△ Screenshot of the report on the website of the Financial Times (the title picture is former US Treasury Secretary Summers)
Inflation has become a "ammunition" for partisanship, and the people can't slow down
Persistently high inflation in the United States is mainly driven by rising oil prices and rents. While new and used car prices fell slightly in March, the price of gasoline, which powers most cars, soared 1.7%.
△ Screenshot of the Associated Press report
The latest rally in oil prices is closely related to the two conflicts that the United States has tried to ignite.
Affected by factors such as strong consumer demand and "OPEC+" production cuts, the trend of international oil prices has recently faced upward pressure. Crude oil prices have accelerated to their highest level in months following frequent attacks on Russia's energy infrastructure, continued instability in the Middle East, and especially concerns about the spread of regional fighting caused by Israel's attack on the Iranian embassy in Syria at the beginning of the month.
And this situation inevitably became ammunition for partisanship.
Yahoo Finance reported that the new inflation data released on the 10th caused a political reaction, which indicates that the Federal Reserve's interest rate decision will almost certainly clash with the presidential election this fall.
"Today's report shows that inflation has fallen by more than 60% from its peak, but we have more work to do to bring costs down for working families," President Joe Biden said in a statement on the same day. "Prices for housing and groceries are still too high, even though the prices of key household items such as milk and eggs are lower than they were a year ago. ”
And former President Trump, who competed with Biden, wrote on social media, "Inflation is back, and it's still raging." ”
△ Screenshot of the report on Yahoo Finance's website
As the 2024 election approaches, the Biden administration and Democrats have been touting strong employment, stable economic growth, and significantly slowing inflation as a major political achievement. But there is obviously a temperature difference between the actual feelings of the people and the government's statement.
Al Jazeera reported by Qatar: Despite rising wages in the United States, the prices of food, fuel and housing are also rising.
Although the current inflation rate in the United States has fallen considerably from last year's record high, the "grocery pain" caused by persistently high prices has not abated for most Americans.
△ AP reports: Persistently high inflation in the United States complicates Biden's narrative that he has made steady progress in rising prices. Polls show that while inflation has eased from its peak, many Americans still blame Biden for high prices.
Rate-setters are concerned that rising price pressures "continue to hurt households, especially those least able to afford the rising cost of necessities such as food, housing and transportation."
△ Screenshot of the report on the website of the Financial Times
U.S. media reports that while the U.S. economy seems to be "booming" in many ways, small business owners have never felt so bad about the economy.
Last month, an index compiled by the National Federation of Independent Business that measures the future expectations of small business owners fell to its lowest level since 2012. Holly Wade, president of the federation, and Bill Dunkelberg, chief economist, said in the report: "The continued pressure to deal with inflationary pressures becomes the biggest business issue. ”
△ Screenshot of CNN report
At the same time, U.S. consumers are losing confidence in their ability to repay their debts. High inflation has saddled Americans with record amounts of credit card debt. The New York Fed's recent monthly survey of consumer expectations showed that the percentage of U.S. consumers who are unsure whether they will pay their minimum debt on time has reached its highest level since the pandemic.
△ Screenshot of CNN report
Derek Chabs, president of the Second Harvest Food Bank in Central Florida, recently said that his organization now provides 300,000 servings of food a day, even surpassing the peak of 250,000 servings provided in November 2022. Most of the people who receive food have jobs.
These people, who usually live on their salaries, are vulnerable to drastic changes in their finances, Chabs said. Most people still haven't recovered from the cost-of-living spikes of the past three years.
"Just because things have gotten better doesn't mean that everything has been solved. ”
△ Screenshot of the Associated Press report