US Inflation Hangs High, Cooling Rate-Cut Bets

Tuesday's consumer price index (CPI) data slightly exceeded expectations, with a 0.4% increase in core inflation. However, investors remain optimistic about an interest rate cut in June, as the data has not significantly altered market forecasts. US equities rose despite the hotter-than-predicted inflation figures, indicating that investors are unbothered by the report.

US Inflation Remains Elevated, Dampening Rate-Cut Expectations

Tuesday's release of the Consumer Price Index (CPI) revealed that inflation levels surpassed initial forecasts, casting some doubt on market expectations for an imminent interest rate reduction by the Federal Reserve.

Headline inflation for February registered a 0.4% increase, exceeding the consensus estimate of 0.3%. This brought the annual inflation rate to 3.2%, matching expectations for the monthly figure but slightly higher than the anticipated 3.1% for the annual reading.

Core inflation, which excludes volatile food and energy prices, also exceeded predictions, rising by 0.4% compared to the estimated 0.3% gain. This indicates that underlying inflationary pressures remain elevated.

Despite the higher-than-expected inflation data, markets continue to price in a rate cut by the Fed in June. However, analysts remain cautious, noting that central bank officials have emphasized the need for further evidence of inflation moderation before considering a rate adjustment.

"With inflation coming in slightly hotter than expected, we believe it's a toss-up whether the Fed cuts interest rates in June or opts for a more conservative approach and waits until September," said Skyler Weinand, chief investment officer at Regan Capital.

Weinand added that while inflation has rapidly decelerated from its peak of 9% to 3%, reaching the Fed's 2% target may take longer than anticipated.

Investors will closely monitor the Producer Price Index (PPI) scheduled for release later this week for further insights into inflationary trends.

Market Movement

US equity markets rebounded on Tuesday, following a pullback in the previous session, as investors largely shrugged off the inflation data. The S&P 500 gained 0.46%, the Dow Jones Industrial Average advanced 0.24%, and the Nasdaq Composite rose 0.43%.

Other Notable Developments

• Barclays analysts believe that the recent rally in bond prices has become excessive, signaling an opportune time for investors to sell Treasury bonds.
• The cryptocurrency market remains buoyant, with the top 10 cryptocurrencies accounting for nearly $3 trillion in market capitalization.
• The US Energy Information Administration (EIA) estimates that the country's historic crude production levels are unlikely to be surpassed in the near future.
• Billionaire investor Stanley Druckenmiller argues that the Fed does not need to cut interest rates for stocks to continue their upward trajectory.

Commodities, Bonds, and Crypto

• Oil prices remained largely unchanged, with West Texas Intermediate (WTI) crude trading at $77.91 per barrel and Brent crude, the international benchmark, at $82.21 per barrel.
• Gold lost 0.23% to $2,171.15 per ounce.
• The 10-year Treasury yield edged up by three basis points to 4.145%.
• Bitcoin gained 0.5% to $72,087.