Federal Reserve receives positive update on inflation progress

The Federal Reserve received some positive news on Wednesday as new data showed a slight easing in inflation in April. The consumer price index rose 3.4% from a year earlier, with a 0.3% increase from March, indicating that the Fed still has some work to do to reach its 2% inflation target.

This report comes after a string of higher-than-expected inflation readings that had raised concerns among policymakers about the need for prolonged high interest rates. However, the latest data showed a slight easing in shelter inflation, with rent prices rising at their slowest pace since 2021.

Analysts noted that the core CPI, which excludes energy and food prices, rose 3.6%, its slowest increase in three years. This suggests that the Fed’s preferred inflation gauge, the personal consumption expenditures price index, likely also eased in April.

Following the release of the data, traders increased their bets on Fed rate cuts in September and December, with rate-futures contracts pointing to a year-end policy rate of 4.75%-5%. However, an early rate cut in July remains unlikely, with pricing reflecting only a one-in-four chance.

Fed Chair Jerome Powell indicated that rate cuts may be deferred until later in the year to ensure inflation is on track to meet the Fed’s goal. While the latest data alleviated concerns about a lack of rate cuts, it is clear that the Fed will need more positive reports before making any decisions.