Why Macquarie Analysts Believe One Month of at-Consensus Core CPI May Not Be Enough For a Fed Rate Cut

Macquarie analysts have recently made a statement suggesting that one month of at-consensus core CPI may not be sufficient to prompt the Federal Reserve to begin counting down towards a rate cut. They have carefully assessed the latest data and its potential impact on the Fed’s interest rate policy. According to the firm, the most recent print of the core CPI was as expected, but they believe it falls short of the necessary criteria to initiate a countdown to rate cutting.

Macquarie suggests that an in-line print is unlikely to be deemed satisfactory by the Fed to kick off a countdown towards a rate cut. They anticipate that Federal Reserve speakers may reiterate this ‘guarded’ view starting from today. As a result, the analysts do not foresee significant follow-through in FX or UST yields as a response to this data.

Despite the lack of enthusiasm towards the recent core CPI print, Macquarie acknowledges the significance of Wednesday’s US CPI report. They note that it marked the end of a series of top-side surprises that had been occurring since January. The report indicated some expected downward trends, such as lower airfares, used and new car prices, and the long-awaited decline in housing rents. However, certain components, such as car insurance costs and recreation services, remained stubbornly high, suggesting that inflationary pressures are still present.

Macquarie’s analysis indicates that even with a +0.3% core CPI print, the overall three-month annualized CPI inflation remains strong at 4.1% as of April. Even when adjusted for a ‘back-of-the-envelope’ calculation for the core PCE PI-equivalent, the inflation rate still exceeds the Fed’s target and indicates a level of stickiness in inflation. This suggests that despite one month of at-consensus core CPI data, the Fed may not view it as sufficient to warrant a rate cut at this point in time.

Overall, Macquarie’s cautious approach to the latest data and its implications on Fed policy signals a conservative outlook on the potential for a rate cut in the near future. This analysis provides valuable insight into the complexities of interpreting economic data and its impact on monetary policy decisions.