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In a surprising turn, US consumer prices experienced a notable increase, throwing a wrench into expectations of potential interest rate cuts by the Federal Reserve this month. According to data released by the Labor Department on Tuesday, the consumer price index (CPI) surged by 3.2 percent annually in February, marking a significant jump from the previous month’s figures. Additionally, the CPI climbed by 0.4 percent in February alone.
This uptick in inflation rates comes as a deviation from the recent downward trend, with the current inflation rate surpassing January’s 3.1 percent but remaining lower than December’s 3.4 percent. Despite these elevated figures, the Federal Reserve continues to strive toward achieving its 2 percent target rate.
To combat inflationary pressures, the Fed has implemented a robust policy of tightening, steadily increasing interest rates in an effort to moderate demand and stabilize prices. Since March 2022, the central bank has progressively raised interest rates through incremental adjustments, bringing the standard federal fund rate within its desired range of 5 to 5.25 percent.
Investors are closely monitoring market reactions, particularly in stocks and cryptocurrencies, following the release of the CPI data. The rise in inflation coincides with a surge in the cryptocurrency market, spurred by the introduction of an exchange-traded Bitcoin ETF in the United States.
Amidst these developments, a recent poll conducted by Reuters suggests that the Federal Reserve may initiate rate cuts later than previously anticipated. According to the survey, respondents believe that the central bank will lower its benchmark interest rate in June, as policymakers await further data to assess the trajectory of inflation towards the 2 percent target.
Federal Reserve Chair Jerome Powell underscored the importance of cautious policy adjustments during his recent testimony to Congress, emphasizing that any rate cuts will be contingent upon sustained progress in addressing inflationary pressures and maintaining a robust labor market.
The poll, which gathered insights from 108 economists between March 5 and 11, indicates that the majority expect the fed funds rate to remain within the 5.25%-5.50% range in the upcoming meeting. However, a significant portion anticipates the first rate decrease to occur in June, reflecting a cautious approach by the Federal Reserve in navigating the economic landscape.
Michael Gapen, Chief US Economist at Bank of America, echoed sentiments of gradual policy normalization, suggesting that continued progress in addressing inflation may pave the way for a gradual cutting cycle starting in June.
Sources By Agencies
