PiCK

US February CPI Up 2.8%... Will Interest Rate Cuts Come Earlier?

Source

Korea Economic Daily

Summary

The article reported that the U.S. February Consumer Price Index (CPI) came in below market expectations, raising hopes for an interest rate cut.
The probability of the first interest rate cut in June has increased to 74%, drawing investors' attention.
Market reactions included falling Treasury yields, while concerns about economic recession were also raised.

Consumer Prices Below Expectations

Core Inflation Limited to 3.1% Increase

74% Probability of First Rate Cut in June

Markets breathed a sigh of relief as the U.S. Consumer Price Index (CPI) for February came in below market expectations, causing Treasury yields to fall.

According to the U.S. Department of Labor on the 12th (local time), February's CPI rose 2.8% year-over-year. This figure is slightly below the 2.9% forecast compiled by Dow Jones. The month-over-month increase was also 0.2%, lower than the expected 0.3%.

Core CPI, which excludes volatile energy and food prices, rose 3.1% year-over-year and 0.2% month-over-month, both below market expectations of 3.2% and 0.3%, respectively.

This CPI report is the last major economic indicator before the Federal Open Market Committee (FOMC) meeting scheduled for the 18th-19th. With inflationary pressures weakening, market observers speculate that the Federal Reserve (Fed) may move up the timeline for interest rate cuts.

According to the CME FedWatch Tool, the probability of the first rate cut occurring at the June FOMC meeting rose from 68.5% to 74.2% immediately after the CPI announcement.

Richard Flynn, Managing Director at Charles Schwab, said, "Considering the Fed's 2% inflation target, these figures will likely accelerate rate cuts," but added, "A cautious approach to the timing of cuts is necessary as housing costs and service prices continue to rise."

Meanwhile, some analysts suggest that lower-than-expected inflation could signal an economic slowdown. While the U.S. job market remains robust, there are concerns that slowing consumption and reduced corporate investment could lead not to a "soft landing" but to the realization of "R (recession) fears."

Jeffrey Roach, Chief Economist at LPL Financial, warned, "The rapid easing of price pressures means that businesses' pricing power is weakening and demand is falling," adding, "If the Fed doesn't adjust its interest rate policy, recession concerns could intensify."

U.S. Treasury yields fell immediately after the CPI announcement. The 10-year Treasury yield dropped slightly from 4.176% to 4.12% following the release.

Reporter Lee So-hyun y2eonlee@hankyung.com