The Fed’s path to lower interest rates this year is further complicated by new data showing that while the job market remains strong, inflation remains high.
The Producer Price Index, which measures wholesale inflation, rose 0.6% in February, twice the Dow Jones estimate of 0.3% and the 0.3% rise recorded in January, the Labor Department said Thursday. .
Data released by the U.S. Bureau of Labor Statistics showed the core PPI, which excludes food and energy, rose 0.3%, beating expectations for a 0.2% rise.
Earlier this week, the federal government reported that the consumer price index, a key inflation measure, rose 3.2% from a year earlier last month, outpacing January’s annual pace of 3.1%.
The better-than-expected Consumer Price Index (CPI) numbers effectively closed the possibility of a rate cut before June.
Fed policymakers are likely to keep interest rates unchanged in the 5.25% to 5.5% range at next week’s meeting.
Economic watchers are currently preparing for February data on the Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred indicator of the direction of inflation.
PCE data is due to be released later this month, but experts warn that any stronger numbers could make central bank policymakers reconsider cutting rates.
“Six weeks ago, the FOMC was asking for ‘more confidence’ that inflation was returning to 2%, but since then, things have gotten worse on the inflation front,” said Stephen Stanley, chief U.S. economist at Santander US Capital Markets. All we get is news.”stated in a note to customers Bloomberg previously reported.
Another important factor that could cause the Fed to delay rate cuts is a tight labor market.
Employment growth accelerated in February, but it likely masks an underlying weakness in the labor market as the unemployment rate rose to 3.9%, the highest level in two years.
Last Friday’s employment statistics, closely monitored by the Labor Department, also showed that wages rose slowly last month.
The rise in the unemployment rate, which remained at 3.7% for three consecutive months, reflects a further decline in household employment.
Fewer Americans filed for unemployment benefits last week, with the annual revision of weekly claims data showing more laid-off workers are finding new jobs quickly and receiving unemployment benefits for longer than previously thought. It showed that they were not spending money.
Meanwhile, retail sales rose just 0.6% last month, lower than economists’ expectations of 0.8%, according to the Commerce Department’s Census Bureau.
Data for January has also been revised downward, with sales now down 1.1% instead of the 0.8% decline in the previous report.
Sales figures for December were also revised downward.
“This month’s retail sales report confirms our view that the economy is strong but cooling,” Morgan Stanley economist Ellen Zentner said in a note. “There is no reason for the Fed to rush into the next rate hike.”
with post wire
