Federal Reserve Officials Cautious on CPI Outlook as Supercore Inflation Jumps

Federal Reserve officials remain cautious about declaring that inflation is on track to reach the central bank’s 2% target, following a recent easing in consumer price pressures in April.

The consumer price index (CPI) rose by 0.3% from March, slightly below the estimated 0.4% by Dow Jones. Despite the monthly increase, the CPI showed a 3.4% rise over the twelve-month period, meeting expectations. The report highlighted that price increases in April were driven significantly by higher costs in shelter and energy.

Vice Chair Philip Jefferson stated at a Mortgage Bankers Association conference in New York that it is too early to determine if the slowdown in disinflation will be prolonged, despite labeling the April data as positive.

Jefferson characterized the current monetary policy as restrictive and refrained from speculating on the possibility of rate cuts commencing this year. He emphasized the importance of closely monitoring economic data, the overall outlook, and risk balance before making any decisions.

Meanwhile, Vice Chair of Supervision Michael Barr, speaking at an Atlanta Fed conference, expressed disappointment with the first-quarter inflation readings, which did not bolster his confidence in supporting a shift towards easing monetary policy. Both Jefferson and Barr reiterated the Fed’s stance that rate cuts will be put on hold until there is concrete evidence of inflation returning to the desired level.

Cleveland Federal Reserve Bank President Loretta Mester shared her belief that inflation will decrease this year, albeit at a slower pace than initially anticipated, in an interview with Bloomberg TV. On the other hand, supercore inflation CPI surged to 4.9% in April, marking the highest level in a year.

Supercore inflation, which excludes all goods, food, energy and housing prices, is a crucial metric monitored by the Fed, and it has exceeded the 2% target for more than three years. The recent increase was primarily driven by a sharp 22.6% rise in auto insurance, contributing significantly to the overall jump in Supercore.

Commenting on the market’s anticipation of rate cuts, BlackRock’s Head of Asia-Pacific Susan Chan expressed her view on Bloomberg’s Tiger Money program, suggesting that she does not foresee the Fed implementing interest rate cuts this year, contrary to the market’s expectations of 1-2 cuts by the end of the year.