BofA: April CPI provides some relief; we still see first Fed rate cut in December

Bank of America maintains its prediction for the first rate cut by the Federal Reserve in December 2024, despite a slight softening in the April Consumer Price Index (CPI). The April CPI showed improvements but not enough to significantly shift the Fed’s cautious stance on inflation.

Key Points:

• April CPI Details: The headline CPI rose by 0.3% month-over-month, slightly below expectations, with the year-over-year rate decreasing to 3.4%. Core CPI increased by 0.3% month-over-month, resulting in a year-over-year rate of 3.6%.
• Core Goods and Services: Core goods prices fell, led by declines in new and used car prices, while core services, particularly rents, remained high but showed signs of slight moderation.
• Long-term Inflation Outlook: Despite the positive report, inflation levels remain above the Fed’s 2% target. The expected core PCE inflation rate is projected at 0.23% month-over-month for April, indicating a gradual decline but still elevated.

Conclusion:

Bank of America concludes that while the April CPI report marks a step in the right direction, it’s not substantial enough to alter the Federal Reserve’s current approach significantly. Continued high levels of core inflation, particularly in services, support a cautious outlook, leading to the retention of a December timeline for the initial rate cut.

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This article was written by Adam Button at www.forexlive.com.