Inflation in the USA surprisingly increased in February. Economists had actually expected consumer prices to remain stable. This puts a damper on interest rate reduction fantasies.
Consumer prices in the US rose 3.2 percent in February after 3.1 percent in January. This was announced by the Department of Labor in Washington. Economists had expected the development to remain unchanged. From January to February, prices rose by an average of 0.4 percent, as expected.
In June 2022, inflation in the USA reached 9.2 percent, its highest level in 40 years. The US Federal Reserve countered this with eleven interest rate hikes. But since June 2023, with price increases of three percent, inflation has proven to be tough and picked up again, especially in August and September.
Interest rate hopes dampened
Economists were surprised by the increase. Bastian Hepperle from Hauck Aufhäuser Lamp said it was “shocking”: “Expectations of key interest rate cuts are faltering. The start of the interest rate turnaround in June is not a sure-fire success.”
“The monthly price dynamics are too high to expect an immediate reduction in the key interest rate,” comments Ulrich Wortberg from Helaba. This also applies with regard to core inflation. “This is likely to displease the Fed and so interest rate cut expectations will probably be slightly dampened again, especially for the meetings next week and at the beginning of May.”
“The central banks’ key interest rate cuts, which are generally expected for summer 2024, are not a sure-fire success,” says DekaBank. It is now becoming clear how difficult it is to take the final steps to reduce inflation.
The Fed has been cautious recently
The US Federal Reserve is countering inflation with a tight monetary policy and is aiming for a figure of two percent. Inflation has eased significantly, Fed Chairman Jerome Powell recently said in Congress. But it is not a foregone conclusion that the inflation rate will fall towards the central bank’s target value. The monetary authorities needed “greater confidence” in a sustained decline before they could cut key interest rates.
After some aggressive increases, the US Federal Reserve paused several times and kept the key interest rate constant in the range of 5.25 to 5.50 percent. Economists do not expect any change for the interest rate decision on March 20th. The first interest rate cut on the financial markets is not expected until the middle of the year.
DAX rises to daily high
The hope of interest rate cuts soon is one of the main drivers of the DAX, which has recently been soaring. After the publication of the US data, the leading German index rose to a daily high of 17,849 points. This means that 39 points are still missing from a record.
The euro also reached its daily high of $1.0928. The cryptocurrency Bitcoin also advanced.
Claudia Werle, HR, tagesschau, March 12, 2024 3:35 p.m