The upcoming Consumer Price Index (CPI) release for April 2024 is anticipated to show continued higher inflation, following the pattern seen earlier in the year. This may lead to the Federal Reserve holding off on interest rate cuts until July or later, as they wait for more data on disinflation. The release is scheduled for May 15, with expectations that the CPI data will support the Fed’s decision-making leading up to the next Federal Open Market Committee meeting.
Estimates for April CPI suggest a 0.4% increase for headline inflation and a 0.3% increase for core inflation, which excludes food and energy prices. The Federal Reserve’s goal is to achieve 2% annual inflation, making these figures above target. Shelter costs, a significant component of the CPI index, are particularly important in this context and are experiencing higher inflation rates compared to other categories. While the FOMC believes that shelter costs should ease and contribute to reducing inflation, this has not yet been reflected in the data.
In recent years, the Federal Reserve has focused primarily on combating inflation through interest rate hikes and maintaining high interest levels. However, with more moderate inflation rates and weaker employment data, the Fed is beginning to shift its focus towards monitoring employment numbers more closely. A softening job market could potentially lead to interest rate cuts, even if inflation is not at the desired 2% target. Consequently, while inflation remains important, employment data is gaining more attention from the FOMC.
The upcoming CPI release is expected to show a monthly increase of around 0.3%, continuing the trend of elevated inflation seen in 2024. While this development is largely anticipated by FOMC officials and markets, any deviation from these expectations could impact the timing of interest rate cuts. A lower-than-expected inflation rate could prompt faster cuts, while a higher rate may delay cuts unless accompanied by softening job market conditions. Overall, the FOMC will closely watch both inflation and employment data in making decisions regarding interest rates.
With the May CPI release due before the next Federal Open Market Committee meeting in June, the Fed’s decision on interest rates will be based on the data presented in the report. The expectation of continued higher inflation suggests that interest rate cuts may be postponed until July at the earliest. The FOMC will closely monitor inflation, particularly focusing on shelter costs and their impact on overall CPI figures. Additionally, the shift towards scrutinizing employment data more closely indicates a move away from solely concentrating on inflation in setting interest rates.