Fed seen on hold until June, with rate-cut pace in focus

A second straight month of strongerthanexpected inflation has actually effectively shut the door on the possibility of a Federal Reserve interestrate cut in the past June, and makes backtoback reductions after that look increasingly less most likely.

Gasoline and shelter costs drove the February consumer price index up 3.2% versus a year previously, a velocity from January's 3.1% boost. Hidden core inflation, omitting gas and food costs, slowed less than financial experts had actually forecast, and on a three-month and six-month basis actually acquired traction.

Those continued cost pressures will not change what Fed policymakers do next week, when they are universally expected to leave the policy rate in the 5.25% -5.5% variety where it has been since last July.

But it suggests insufficient information may exist by their April 30-May 1 conference to provide confidence that inflation is durably on a course towards the Fed's 2% goal, experts say. Even by June, there might be insufficient information to validate more than a. couple of rate cuts all year.

Tuesday's inflation report is an awful read that will do. nothing to sooth nerves at the Fed, wrote BMO economic expert Scott. Anderson. Plainly, limiting monetary policy has not. completely done its work and a client and slightly hawkish Fed must. remain in place for the monetary medicine to fully work.

Core services inflation leaving out rents, a step to which. Fed Chair Jerome Powell has actually said he pays close attention, increased. 0.5% in February from a month earlier, and over the previous 3. months is up on an annualized basis by 6.8%, compared to the. 6.7% pace in January.

Those sticky-hot readings will add to Fed caution on the. inflation outlook, stated Nationwide's Kathy Bostjancic.

While we thought a May cut was on the table, it is. increasingly likely that the FOMC waits a minimum of up until June to. begin relieving financial policy, she said, describing the Fed's. policy-setting Federal Free market Committee.

Policymakers will release fresh quarterly forecasts at. next week's meeting, and still-too-high inflation raises the. possibility that those forecasts will signify just two. quarter-point interest rate cuts this year, compared to the. 3 seen in December.

Just two of the 19 Fed policymakers would need to shift. their rate-path views to deliver such a change.

Clearly the inflation data are running hotter than FOMC. participants were typically thinking at the time of the December. FOMC conference, wrote economists at LHMeyer.

Still, even if March forecasts reveal a bulk of Fed. policymakers see just two or less rate cuts this year, that. would not always prevent a very first cut in June, they wrote.

Traders of futures agreements that settle to the Fed's policy. rate are pricing about a one-in-seven chance of a first rate cut. in May, and a comparable opportunity that the Fed will wait till July. to reduce rates. They continue to see the main chance as June,. rates in about a 70% opportunity of a rate cut already.

After the inflation data, traders pared their view of how. much the Fed will cut rates by year-end, with prices showing. they see four quarter-point rate cuts in all as just a bit more. likely than just three.

(source: Reuters)