Inflation comes in hotter than expected in March

The Consumer Price Index (CPI) rose 0.4% over the previous month and 3.5% over the prior year in March, an acceleration from The data matched February’s month-over-month increase.

Both measures came in ahead of economist forecasts of a 0.3% monthly increase and a 3.4% annual increase, according to data from Bloomberg.

The hot print complicates the Federal Reserve’s next move on interest rates as the central bank works to bring inflation back down to its 2% target. Fed officials have categorized the path down to 2% as “bumpy.”

Investors now anticipate two 25 basis point cuts this year, down from the six cuts expected at the start of the year, according to updated Bloomberg data.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

On a “core” basis, which strips out the more volatile costs of food and gas, prices in March climbed 0.4% over the prior month and 3.8% over last year — matching February’s data. Both measures were higher than economist expectations of a 0.3% monthly increase and a 3.7% annual gain.

Markets sank following the data’s release, with the 10-year Treasury yield (^TNX) jumping more than 14 basis points to touch above 4.5% for the first time in 2024.

“Today’s crucial CPI print has likely sealed the fate for the June FOMC meeting with a cut now very unlikely,” Seema Shah, chief global strategist at Principal Asset Management, said in reaction to the print. “This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip.”

“In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making,” Shah added.

Ryan Sweet, chief US economist at Oxford Economics, agreed, adding the hotter data may push more policymakers “into the two-rate cut camp.”

“The Fed has a bias toward cutting interest rates this year, but the strength of the labor market and recent gains in inflation are giving the central bank the wiggle room to be patient,” Sweet said. “If the Fed does not cut interest rates in June, then the window could be closed until September because there is little data released between the June and July meetings that could alter the Fed’s calculus.”

“The odds are rising that the Fed cuts rates less than 75 basis points this year,” he predicted.