The upcoming release of the Consumer Price Index (CPI) data for April 2024 is expected to show continued higher inflation levels, which may lead the Federal Reserve to hold off on interest rate cuts until July or later. The release is scheduled for May 15 by the U.S. Bureau of Labor Statistics, just before the next Federal Open Market Committee meeting on June 12. The FOMC is not expected to cut interest rates until July at the earliest due to the lack of progress on disinflation in 2024.
Estimates suggest that April’s CPI may show a 0.4% increase in headline inflation and 0.3% increase in core inflation, which excludes food and energy prices. The FOMC’s goal is to maintain a 2% annual inflation rate, but current forecasts indicate inflation rates in the range of 3.3% to 3.4% for April. The FOMC will be closely monitoring these figures to determine the need for interest rate adjustments.
Shelter costs are expected to play a significant role in the upcoming CPI figures, as they carry a large weight in the index and have been experiencing faster inflation compared to other categories. Despite industry suggestions that shelter costs should ease and help bring down inflation, this has not been reflected in CPI figures. The FOMC anticipates that a decrease in shelter costs could help align inflation with their 2% target.
The Federal Reserve is shifting its focus from solely monitoring inflation to also closely watching employment data. With a weaker April jobs report and moderate inflation levels, the FOMC is beginning to prioritize employment figures as a potential driver for interest rate cuts. If the job market softens, it could prompt rate cuts even if inflation levels are not at the desired 2% target. Therefore, in addition to inflation, employment data will also be closely observed by the FOMC.
The market anticipates April’s CPI release to show a monthly increase of around 0.3%, continuing the trend of elevated inflation levels in 2024. FOMC officials and markets have already factored in this expectation, with potential rate cuts dependent on the actual inflation figures. If inflation is lower than expected, rate cuts may be accelerated, while higher than expected inflation could lead to discussions of delaying rate cuts unless there is a softening in the job market. As such, both inflation and employment data will be essential in shaping the Federal Reserve’s decisions on interest rates.
