The Federal Reserve’s path to cutting rates of interest later this 12 months just got a bit more complicated because of fresh data showing that inflation continues to stay stubbornly high while the job market is staying hot.
The Producer Price Index, which measures wholesale inflation, rose 0.6% in February, the Labor Department said on Thursday — doubling the 0.3% forecast from Dow Jones and the 0.3% gain registered in January.
Core PPI, which excludes food and energy, rose 0.3%, outstripping estimates who forecast a 0.2% increase, in response to data released by the Bureau of Labor Statistics.
Fed Chair Jerome Powell has urged investors to be patient as they clamor for rate of interest cuts. Getty Images
Earlier this week, the federal government reported that the principal inflation gauge, the Consumer Price Index, rose 3.2% last month versus a 12 months earlier, above January’s 3.1% annual pace.
The stronger-than-expected CPI numbers has effectively shut the door on the potential of an rate of interest cut before June.
Fed policymakers are more likely to leave the policy rate within the range of 5.25% to five.5% once they meet next week.
Economic observers at the moment are bracing for the February data on the private consumption expenditures price index (PCE), the Fed’s preferred gauge of where inflation is headed.
PCE data is anticipated to be unveiled later this month, though experts warn that one other strong number could make policymakers on the central bank think twice about cutting rates.
“Six weeks ago, the FOMC was looking for ‘greater confidence’ that inflation was moving back to 2% and since then, now we have gotten nothing but bad news on the inflation front,” Stephen Stanley, chief US economist at Santander US Capital Markets, said in a note to clients earlier reported on by Bloomberg.
Retail figures show that customers have in the reduction of on spending as a consequence of high levels of inflation. Getty Images
One other key factor that might cause the Fed to delay rate of interest cuts is a decent labor market.
Job growth accelerated in February, but that likely masks underlying softening labor market conditions because the unemployment rate increased to a two-year high of three.9%.
The Labor Department’s closely watched employment report from last Friday also showed wages rising moderately last month.
Inflation has remained high — shutting the door on the potential of rate cuts before June. Getty Images
The jump within the unemployment rate after holding at 3.7% for 3 straight months reflected an additional decline in household employment.
Fewer Americans applied for unemployment advantages last week and annual revisions to the weekly claims data showed laid-off staff were quickly finding latest work and never spending as long a time frame on jobless advantages as had been previously thought.
Meanwhile, retail sales rose just 0.6% last month, the Commerce Department’s Census Bureau said – shy of the 0.8% that was forecast by economists.
The Fed has yet to see signs that might justify rate cuts before June. Getty Images
Data for January also was revised lower to indicate sales tumbling 1.1% as an alternative of the previously reported 0.8%.
Sales in December were also downgraded.
“The retail sales report this month supports our view that the economy is robust but cooling,” Morgan Stanley economist Ellen Zentner said in a report. “There is no such thing as a reason for the Fed to rush the following move in rates.”
With Post Wires
