CJ Cowan, portfolio manager at Quilter Investors has shared his thoughts following the latest news on US inflation rates.
Much like the employment report on Friday, the latest US inflation figures can already be considered as stale on release after the exhausting back and forth of tariff announcements. Federal Reserve minutes yesterday indicated concern about upside inflation risks, and over the past few days it has become increasingly clear that the Fed won’t pre-emptively cut interest rates but instead they would need to see more significant weakening in the labour market first.
As it happened, both headline and core CPI surprised to the downside. With core CPI now down to 2.8% year-on-year, it brings us much closer to the Fed’s 2% target. However, this fall could be short-lived as even the watered down tariffs from last night could add around 1% to inflation rates, again leaving the Fed reluctant to act at this juncture.
While the Fed will take some comfort that disinflationary forces remained intact through March, the future remains highly uncertain and we expect them to proceed very cautiously, if at all, with rate cuts, absent a major deterioration in the labour market.
