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U.S. Economic
Macro Commentary & Insights

Inflation Eases in April, Bulls Grab the Reins

May 17, 2024
  • CPI decreases for first time this year
  • Disappointing retail sales helps fuel rate-cut expectations
  • Fed to slow the pace of balance-sheet run-off
  • Hot Producer Price Index a lone contrarian in most recent data releases

The Consumer Price Index (CPI) inflation gauge was released Wednesday. Inflation eased slightly in April, offering relief to the market and Federal Reserve alike, as the print reversed the trend of increasing inflation. CPI rose 3.4% year over year in April, the Labor Department reported. Core CPI, which excludes food and energy items, climbed 3.6% annually, the lowest increase since April 2021. The core print snapped a streak of six straight months of increasing inflation and three consecutive prints above market expectations. The print spurred a nine-basis-point intraday rally in the 10-year Treasury rate, which is down from a 4.75% April high to a current 4.40% level.

Consumer Price INdex (CPI)

Source: U.S. Bureau of Labor Statistics

As noted in our January FOMC meeting recap, Fed Chair Jerome Powell has significantly cooled market expectations for rate cuts in 2024. In January there were six rate cuts priced into the market; in late April projections fell to just one. General market sentiment on rate cuts has been bearish since the start of the year, but things have begun to shift. Wednesday’s inflation print, coupled with a disappointing retail sales number, has helped further fuel bullish market sentiment that was initially ignited by the weak nonfarm payrolls print released in early May. The market is now pricing in a 55% probability of a rate cut in September and a 60% probability of a cut in December. Next month’s Federal Open Market Committee (FOMC) meeting will be highly anticipated by the market, as the Fed will be releasing their updated dot plot, providing guidance to the market on future policy.

The inflation print has polarized the market. Market bulls believe that a soft landing is in view: As inflation cools again, the labor market has begun to weaken, and consumer spending has tailed off. On the other hand, market bears note that the April CPI print was the first of the year to tick down—and only did so slightly. Inflation remains above the Fed’s 2% goal and seems to be taking a “two steps forward, one step back” approach in getting there. We get a whole slew of data before the next meeting, with the Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE), coming out at month-end, quickly followed by Nonfarm Payrolls and the Unemployment Rate. Based on the meeting schedule, the Fed should have a look at another CPI number during their meeting, all of which will help drive the highlight of the June meeting: the revised dot plot.

Rate-Cut Bets Boosted Following Tepid CPI Print

Source: Bloomberg LP

This commentary and any statements, information, data and content contained therein, and any materials, information, images, links, sounds, graphics or video provided in conjunction with this document (collectively “Materials”) has been prepared for informational purposes or general guidance on matters of interest only, and does not constitute professional advice, advertising or a solicitation. The Materials are of a general nature and not intended to address the circumstances of any particular individual or entity. You should not act upon the information contained in the Materials without obtaining specific professional advice. As such, nothing herein constitutes legal, financial, business, investment or tax advice and you should consult your own legal, financial, tax, investment or other professional advisor(s) before engaging in any activity in connection herewith. The information in the Materials is not a substitute for a thorough due diligence investigation. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in the Materials, and, to the extent permitted by law, Berkadia Commercial Mortgage LLC ( together with its affiliates, the “Company”) neither accept nor assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the Materials or for any decision based on them. No part of the Materials is to be copied, reproduced, distributed or disseminated in any way without the prior written consent of the Company.

Questions? Contact Us.

Josh Bodin

Senior Vice President
Securities Trading
josh.bodin@berkadia.com

Steve Bevilacqua

Assistant Vice President
Securities Trading
steve.bevilacqua@berkadia.com

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