US March CPI Up 3.5%, Exceeding Expectations for Third Consecutive Month... June Rate Cut Out of Reach

Core CPI rises 3.8%
June rate cut expectations plummet... US 2-year Treasury yield nears 5%

The US consumer price index (CPI) inflation rate for last month once again exceeded market expectations, remaining in the 3% range. With inflation surpassing forecasts for three consecutive months, expectations are growing that the US Federal Reserve's (Fed) interest rate cut will be postponed to the second half of the year.

On the 10th (local time), the US Department of Labor announced that the March CPI rose 3.5% year-on-year. This exceeded both the previous month’s rate (3.2%) and expert forecasts (3.4%).

The core CPI increased 3.8% year-on-year. Although this was the same level as the previous month (3.8%), it also surpassed market expectations (3.7%). The core CPI, which excludes volatile energy and food prices to show the underlying trend of inflation, is the key indicator closely watched by the Fed.

Housing costs and gasoline price increases accounted for more than half of the monthly CPI rise. Housing costs rose 0.4% month-on-month, maintaining the increase seen in February (0.4%). Gasoline prices increased 1.7% month-on-month. Although this was a smaller rise compared to February (3.8%), it significantly contributed to the CPI increase. As a result, energy prices rose 0.3%, a larger increase than February’s 0.1%. Auto insurance, clothing, education, furniture, and medical expenses also stimulated the rise in core CPI.

Following strong employment figures last week and the confirmation of hot inflation this day, expectations for Fed rate cuts are retreating. According to the Chicago Mercantile Exchange (CME) FedWatch, after the March CPI release, federal funds futures markets are pricing in about a 21% chance that the Fed will cut rates by 0.25 percentage points or more at the June Federal Open Market Committee (FOMC) meeting. This is a sharp drop from around 57% the day before and 72% a month ago.

David Kelly, Chief Global Strategist at JP Morgan Asset Management, analyzed that "the door to a June rate cut is firmly closed."

As expectations for rate cuts vanish, Treasury yields are surging. The US 2-year Treasury yield, sensitive to monetary policy, rose 16 basis points (bp) from the previous trading day to 4.9%, while the US 10-year Treasury yield, the global benchmark for bond yields, moved up 12 bp to around 4.49% (1 bp = 0.01 percentage points).

This content was produced with the assistance of AI translation services.