NAIROBI (Coinchapter.com) – Former U.S. Treasury Secretary Larry Summers has cautioned that the recent hot consumer price index (CPI) report for March could increase the chances of the Federal Reserve’s next move being an interest rate hike, rather than the previously expected cuts. Summers’ remarks come as a stark contrast to the market’s prevailing expectations, underscoring the potential for a shift in the central bank’s policy trajectory.

12-month percentage change, Consumer Price Index. Source: U.S. BUREAU OF LABOR STATISTICS

Following the Bureau of Labor Statistics report, the CPI rose 3.5% year-over-year in March, surpassing the expected 3.4%. The core CPI, excluding food and energy, increased to 3.8% annually, equaling February’s rate but exceeding the forecast of 3.7%. These figures indicate higher inflation than economists had anticipated.

Significant Chance of Rate Hike

Larry Summers emphasized on Bloomberg TV that the Federal Reserve might raise rates next, assigning a 15% to 25% chance to this outcome. His assessment starkly contrasts with prior market expectations of a June rate cut. This shift highlights the need to seriously reconsider future Federal Reserve actions.

Summers emphasized that the current data does not provide a strong case for a rate cut in June, stating, “I see no case for a cut in June, but facts can change.” This sentiment suggests that the central bank may face increasing pressure to maintain or even raise interest rates, depending on the evolution of economic conditions.

The market’s expectations for the Fed’s June meeting have shifted significantly following the latest CPI report. Fed-funds futures now reflect an 85% probability that the central bank will leave rates unchanged, up from a 42.6% chance on Tuesday.

Biden Responds to March CPI Report

In a statement, President Joe Biden acknowledged that while inflation has fallen more than 60% from its peak, there is still more work to be done. He noted that prices remain too high for housing and groceries, even as prices for some household items like milk and eggs are lower than a year ago.

Biden reiterated that fighting inflation remains his top economic priority and said his agenda includes lowering costs for prescription drugs, healthcare, student debt, and hidden junk fees. He criticized Congressional Republicans for proposing tax cuts for billionaires and big corporations while helping special interests and pharmaceutical companies raise prices.

Summers’ insights reflect a broader reconsideration of monetary policy strategies amid fluctuating economic indicators. His perspectives offer a compelling narrative on the complexities of managing inflation, urging a reevaluation of rate cut prospects. As the June meeting approaches, all eyes will remain on the Fed.

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Filed under: Bitcoin - @ April 11, 2024 2:19 pm