Hot rate-cut summer hype wanes as stubborn inflation crushes June hopes

That’s hot… not in a “Simple Life” way. US consumer prices came in hotter than expected for a third month straight. Investors got the inflation ick after learning that March prices were up 3.5% from a year earlier, meaning the pace of inflation picked up. After the bummer report, traders slashed their bets on a June interest-rate cut. It’s all a blow for President Biden with the big election looming and prices being a key issue. Highlights from the March Consumer Price Index:

• Gas and housing accounted for more than half of the inflation surge. Energy prices popped 1%+ over the month — with shelter up nearly 6% from a year ago (#RentAnxiety).

• Proteins ⬆️: The index for meats, poultry, fish, and eggs rose nearly 1% in March, fueled by a 4.6% surge in egg prices (bird flu’s back).

• Sweets ⬇️: You might wanna swap your omelet for a pastry. The prices of bakery goods and cereal fell, and butter was down a whopping 5%.

So long, hot rate-cut summer… we hardly knew ye. Inflation had been cooling for a while, which gave investors hope for June rate cuts. At the Fed’s meeting last month, most officials maintained their forecast of three cuts this year, and traders’ bets on a June cut rose to odds of 75%. But after the CPI came out, traders on Wednesday were pricing in just two rate cuts this year, starting in September instead of June. They even priced in a 13% chance for no cuts at all in 2024. Expectations shifted yesterday after some welcome news:

• US producer prices (aka: wholesale) rose less than expected last month — though it was the biggest gain in a year.

• Still, it was enough to make traders bet that the US central bank could start easing rates in late July, with equal likelihood of a July vs. September cut.