Rising Inflation Sparks Uncertainty over June Fed Rate Cuts

The CPI report showed that the super core measure (basic services excluding housing) increased by 0.47%, too high, although an improvement from the surprising 0.85% increase recorded in January. Also notable was the first increase in goods prices in eight months. PPI was also stronger than expected, although analysts project that the relevant components affecting core PCE, the price measure the Fed tracks, should decline to 0.3% in February from 0.42% in January. Because of these upticks in the various inflation measures the markets are no longer so sure that the Fed will cut rates in June. About 10 days ago the market was assigning a 96% probability that the Fed would cut rates in June, following higher than expected U.S. consumer and producer price indexes, but those odds have been reduced to 61%. Investors continue to question the timing and frequency of Fed rate cuts.

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