Expectations of a Fed rate cut in June are weakening

The higher-than-expected US consumer inflation report for March caused expectations of a Fed rate cut to weaken. Now its decline in June looks increasingly unlikely.

The consumer price index rose by 3.5% y/y last month, exceeding the February figure of 3.2% and the expected 3.4%. The annual benchmark, excluding volatile items such as food and fuel, remained at 3.8%, despite expectations of a decline.

These high figures forced the futures market to revise the forecast for a 40 basis point rate cut this year, while at the beginning of the year a 150 bps cut was expected. Goldman Sachs analysts also postponed the forecast for the first rate cut from June to July. They also forecast a quarterly rate cut in 2024, starting in July and ending in November.

UBS is even more pessimistic: now the bank expects the first rate cut in September, abandoning the June scenario.

Producer prices in the United States will be published later in the session, which will help market participants get a clearer picture of March inflation. The underlying annual rate is expected to grow by 2.2%, while the monthly rate will increase by 0.3%.