US February CPI and core CPI annual growth rates exceeded expectations, reaching 3.2% and 3.8% respectively, indicating that inflationary pressure remains. The CME FedWatch tool shows that there is a 99.0% probability that the Federal Reserve will keep interest rates unchanged at the next FOMC meeting, with only an 11% probability of a rate cut in May.
The US Bureau of Labor Statistics (BLS) released the February CPI report yesterday evening. This is the second consecutive month of higher-than-expected inflation data following January. The data shows that the US February CPI annual growth rate was 3.2%, higher than the expected 3.1%. The monthly growth rate was 0.4%, in line with expectations and higher than the previous value of 0.3%. The core CPI annual growth rate was 3.8%, higher than the expected 3.7%. The monthly growth rate was 0.4%, higher than the expected 0.3%. This data reflects the ongoing inflationary pressure in the US, posing a challenge to the Federal Reserve’s relaxation of monetary policy.
The probability of a rate cut in May has dropped to 11%. As a result, the market believes that the probability of the Federal Reserve cutting interest rates in the short term has further decreased, almost ruling out the possibility of a rate cut before June. According to the CME FedWatch tool, there is a 99.0% probability that the Federal Reserve will maintain interest rates in the range of 5.25% to 5.50% at the FOMC meeting next week, with only a 1.0% probability of a 1-point rate cut. The probability of keeping rates unchanged in May is 88.9%, with a cumulative 1-point rate cut probability of 11%, significantly lower than the 52.2% a month ago.
According to the Department of Labor’s report, energy and housing costs accounted for over 60% of the overall price increase in February. Energy costs rose by 2.3%, with gasoline rising by 3.8%. Housing costs, which account for about one-third of the CPI weight, rose by 0.4%, with owner’s equivalent rent (OER) rising by 0.4%.
Robert Frick, an economist at Navy Federal Credit Union, stated that although Federal Reserve officials have hinted in recent weeks that there may be rate cuts at some point this year, they have also expressed caution about easing too soon to combat high inflation. After two consecutive months of CPI exceeding expectations, Paul Ashworth, Chief North American Economist at Capital Economics, stated that the timing of a possible rate cut this year is uncertain. Russell Price, Chief Economist at Ameriprise Financial Services, believes that inflation issues may persist for several months, which could delay the Federal Reserve’s first rate cut beyond expectations, and he believes that the most likely timing would be in June.