Bumps in the road

Federal Reserve Chair Powell was correct when he said that inflation is following a bumpy path, and the March consumer price report (CPI) confirmed that. 

Consumer prices rose 0.4% in March, the same as in February, but the highest since September. The last 12-month CPI accelerated from 3.2% to 3.5%, and the closely watched core measure was flat, at 3.8%, against expectations that it would fall to 3.7%. While these might appear to be quibbles over small numbers—especially in the context of how far inflation has fallen since the pandemic highs—the picture they paint is one of stubborn inflation that may postpone the Fed cuts of its federal funds rate. The consumer view from the University of Michigan sentiment survey confirms inflation continues to hang around. Overall sentiment eased lower, both in current conditions and expectations, and inflation views edged higher. Consumer outlook has been stable over the last four months, but reflect frustration at the slowing pace of disinflation. 

It's easy to argue the U.S. economy does not need the additional stimulus a rate cut would provide. After all, more jobs were added last month than in any month since May 2023, the unemployment rate fell from 3.9% to 3.8%, continuing the streak of below 4% unemployment stretching back to February 2022, and housing is showing signs of growth. The main impact of the continuing strength of the labor market is its impact on sentiment and expectations; uncertainty leads to more rate volatility.