"New Fed News Agency": The Fed may still not cut interest rates before September.

The CPI of the United States slowed down slightly in April, and the year-on-year increase of core CPI was the smallest increase in three years since April 2021. The data was generally in line with expectations. Three consecutive CPI reports before the April report showed that the price pressure in the United States exceeded expectations, which led to a sharp withdrawal of the market's expectation of the Fed's interest rate cut.

The latest CPI report undoubtedly relieved investors and the Federal Reserve a little, and the expectation of interest rate cuts in the market rekindled. Traders in the swap market recently believe that the probability of cutting interest rates by 25 basis points will exceed 80% by the time of the Fed meeting in September. Many Wall Street analysts also hold a similar view, that is, the inflation data in April is enough to cut interest rates from September, even if it can't make the Fed cut interest rates in July.

On Wednesday, the market reaction was obvious. US debt and US stocks rose in response, rising sharply during the day. The S&P and Nasdaq 100 hit record highs, and the US dollar fell.

However, Nick Timiraos, a well-known financial journalist known as the "New Fed News Agency", and his colleagues poured some cold water on the optimism of the market. In their latest article, they pointed out that the Fed may not cut interest rates before September, and the April report is not enough to change much.

Timiraos pointed out that Wednesday's inflation data should give Fed officials a sigh of relief because it shows that prices and economic activities have not accelerated again. Another report on Wednesday showed that retail sales in the United States were flat in April, confirming this hypothesis again. Timiraos quoted industry insiders as saying, "This is a very gratifying report. This is consistent with the view of soft landing. "

Despite this, Timiraos still said that as far as the April CPI report itself is concerned, the data is not enough to change the Fed's expectation of whether and when to start cutting interest rates. The significance of April CPI data is that it keeps the possibility of interest rate cuts later this year, and calms some people's concerns that the Fed may need to further open the door to interest rate hikes. In his speech yesterday, Federal Reserve Chairman Powell played down the prospect of raising interest rates, but did not completely rule out this possibility.

Timiraos said that most economists currently expect the Fed to cut interest rates this year, but there are differences on when to cut interest rates. Since two CPI reports may be needed to boost officials' confidence that inflation can return to the low level before the COVID-19 epidemic, the Fed may not cut interest rates before September.

Wall Street has previously said that even if inflation falls, it may still not satisfy the Fed. Overnight, in a speech in Amsterdam, Federal Reserve Chairman Powell said that the first quarter data reduced his confidence in the cooling of inflation, so the Fed could not give whether or when to lower interest rates.

Timiraos pointed out that millions of Americans still face enormous price pressure. Gasoline prices have pushed up overall inflation, while housing costs continue to rise. However, the year-on-year increase in rents has slowed down compared with a month ago, indicating that a key factor contributing to inflation is slowing down. In April, the cost of groceries and vehicles also decreased slightly compared with that in March, and the price increase of medical care slowed down.

Timiraos quoted Powell's recent speech in the article:

We didn't expect this to be a smooth road, but these figures in the first quarter were higher than anyone expected. This tells us that we need to be patient and let restrictive policies work.

Two years ago, Fed officials were very worried that if employment did not drop sharply, the extremely high inflation we saw might be difficult to reduce, but this did not happen. This is a good result.

But people are not happy because they pay a high price, even though the inflation rate has slowed down. You tell people that inflation is slowing down, but they think they don't understand this, because the price of everything they buy has not dropped. There is nothing wrong with them.

Timiraos also mentioned that the preliminary results of a survey released by the University of Michigan last week showed that American consumer confidence fell sharply in May. Americans have a gloomy outlook, partly because inflation and interest rates are expected to remain high, which puts pressure on household budgets and keeps mortgage interest rates at a high level.

Some economists and Democrats worry that keeping American interest rates at the highest level in more than 20 years may weaken employment growth and plunge the economy into recession. Although the American economy is in the leading position among developed economies, the worry about inflation has become a thorny political issue facing President Biden.

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