The upcoming Consumer Price Index (CPI) release for April 2024 is expected to show a continuation of the trend of relatively higher inflation seen this year. This could potentially lead to the Federal Reserve holding off on interest rate cuts until July or later, based on the CPI report. The release is scheduled for May 15, with another one expected in June before the Federal Open Market Committee (FOMC) meeting on June 12. The lack of progress on disinflation so far in 2024 suggests that the FOMC may not cut rates until July at the earliest.
Estimates suggest that the April CPI may see a 0.4% increase in headline inflation and a 0.3% increase in core inflation, which excludes food and energy prices. The FOMC’s annual inflation goal is 2%, so there is still some way to go to reach this target. Shelter costs are expected to play a significant role in the upcoming CPI figures, as they have been slower to cool compared to other major categories. The FOMC anticipates that a decrease in shelter costs could help bring down inflation and align it with their target.
The Federal Reserve has shifted its focus from primarily monitoring inflation to paying closer attention to employment data. With a weaker April jobs report and inflation at more manageable levels, employment figures may now play a more significant role in determining interest rate cuts. A softening job market could prompt rate cuts, even if inflation is not yet at the desired 2% annual target. While the FOMC will continue to watch inflation figures closely, employment reports may gain more attention in the decision-making process.
The upcoming CPI release is expected to show a monthly increase of approximately 0.3%, in line with the trend of elevated inflation seen in 2024. FOMC officials and markets are prepared for this development. If inflation comes in lower than anticipated, it could accelerate interest rate cuts. On the other hand, if inflation exceeds expectations, unless there is a softening in the job market, discussions of delaying rate cuts further could arise. Therefore, the outcome of the April CPI release will likely have implications for the Fed’s decision-making process regarding interest rates in the coming months.
