FILE – Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board. … (+)
The next release of the Consumer Price Index, scheduled for April 2024, is expected to continue this year's trend of relatively higher inflation. If that happens, the CPI report will likely support the Federal Reserve's decision to suspend its interest rate cuts until July or later.
CPI release schedule
On May 15, the U.S. Bureau of Labor Statistics will release CPI data for the month of April at 8:30 a.m. ET. This will be the first of two IPC publications before the next meeting of the Federal Open Market Committee on June 12. However, the subsequent May CPI release will come on the morning of the FOMC interest rate decision in June. Due to the lack of progress on disinflation so far in 2024, the FOMC is not expected to cut rates until July at the earliest, and most likely later.
Inflation estimates
Nowcasts suggest that April's CPI could be 0.4% for headline inflation and 0.3% for core inflation, which does not take into account food and milk prices. 'energy. It is according to a Cleveland Federal Reserve Nowcasting Model. Event forecasting site Kalshi predicts inflation will be between 3.3% and 3.4% in the April CPI report. The FOMC's annual inflation target is 2%. There is therefore still a way to go to achieve this objective.
Housing costs
Housing costs have a key role to play in the upcoming CPI figures. Housing ranks high in the CPI and experiences faster inflation than other major categories. So far, housing costs have been slower to cool down in the CPI figures than industry sources suggest, in part because of the statistical techniques used in the CPI calculations. The FOMC broadly expects housing costs to fall and perhaps help lower inflation, but policymakers have yet to see this. If this were to occur, the significant weight given to the shelter in the CPI could help bring inflation back on track to the FOMC's 2% target.
The Fed is now monitoring employment more closely
Over the past two or three years, the Fed has focused almost exclusively on fighting inflation, first raising interest rates to relatively high levels and then holding them at those levels for nearly a year now. Of course, the FOMC monitors all economic data, but inflation has taken center stage.
Today, this approach is changing. With a weaker April jobs report and inflation at more moderate levels, the FOMC is starting to watch the jobs data more closely. It could be that a slowdown in the jobs market provides the impetus for lower interest rates, even if inflation is not as close to the Fed's 2% annual target as desired . Therefore, although inflation numbers will be closely watched, employment reports could attract more attention from the FOMC.
What to expect
The April CPI release is expected to continue the trend of somewhat elevated inflation in 2024, with a monthly increase of around 0.3%. However, this development is widely anticipated by FOMC officials and the markets. If inflation were lower than expected, this could potentially accelerate the decline in interest rates. If inflation rises, unless the labor market slows, that could prompt discussion of further rate cuts at a later date.