US April Consumer Price Index (CPI) growth is smaller than in March, and the core CPI annual growth rate has reached a new three-year low. Wall Street investment banks have expressed that the slowing inflation data may not prompt the Federal Reserve to cut interest rates in July, but it is likely to result in a rate cut in September at the latest.
The data released by the US Bureau of Labor Statistics last night shows that the US April CPI increased by 3.4% on an annual basis, in line with market expectations. This is the first time since January this year that the annual growth rate has slowed down. The core CPI, which excludes food and energy costs, has fallen to a 3.6% annual growth rate, the smallest increase since April 2021. This has reignited hopes for a rate cut by the Federal Reserve, and both US stocks and Bitcoin have surged.
According to data from the CME Fedwatch interest rate futures market, the current market estimates are as follows: the probability of the Federal Reserve maintaining the current interest rate in June is 97.3%, while the probability of a one-point rate cut is only 2.7%; the probability of maintaining the current interest rate in July is 67.1%, while the probability of a one-point rate cut is 32%; and the probability of maintaining the current interest rate in September is only 25.5%, while the probability of a one-point rate cut is 53.8%.
After the release of the CPI data, Wall Street investment banks have expressed that this data opens the door for a rate cut by the Federal Reserve. Even if the April inflation data cannot prompt the Federal Reserve to cut interest rates in July, it should be sufficient to initiate a rate cut in September. The following are the first reactions from Wall Street investment banks.
How does Wall Street view this?
JPMorgan Chase stated that the April CPI data is a relief, indicating that inflation is returning to a downward trajectory. JPMorgan Chase still maintains the view that the Federal Reserve will cut interest rates for the first time in July, but further cooling of labor market activity may be needed to achieve this.
Goldman Sachs stated that based on the latest Producer Price Index (PPI) and CPI data, it still expects a 0.25% increase in the April PPI and anticipates a 25 basis point rate cut by the Federal Reserve in July, followed by quarterly rate cuts.
Morgan Stanley stated that the CPI data has slowed down compared to the first quarter of this year, which is the first convincing evidence that the Federal Reserve needs to start cutting interest rates as soon as possible. Morgan Stanley still expects inflation to slow down further in the future, especially in the second half of 2024, and predicts that the Federal Reserve will cut interest rates for the first time in September this year.
Wells Fargo stated that the Federal Reserve still needs several more moderate inflation data points before it has enough confidence to start cutting interest rates. Wells Fargo expects the Federal Reserve to cut interest rates for the first time in September, but any new bumps in the road could delay the timing of the rate cut.
Wolfe Research believes that the Federal Reserve’s hawkish stance has reached its peak, and it predicts that inflation and economic growth data will soften in the near future, providing reasons for the Federal Open Market Committee (FOMC) to cut interest rates in September and December.
RBC Capital Markets stated that the April CPI data is somewhat relieving, but it is not worth celebrating. Although price pressures have slightly eased, they are still generally rising, and the core indicators remain high. RBC Capital Markets expects the Federal Reserve to remain cautious for most of this year and then choose to cut interest rates for the first time in December, but this depends on whether the CPI data continues to decline during this period.