Evelyn Reynolds

Higher-than-expected inflation in March helped verify worries that inflation is proving stickier than thought.
Following the CPI report, markets switched from pricing in a June rate cut to September, and lowered the outlook this year to two reductions from three.
Markets didn’t like the CPI news and sold off aggressively Wednesday.

Traders work on the floor of the New York Stock Exchange during afternoon trading on April 09, 2024 in New York City.
Michael M. Santiago | Getty Images

As recently as January, investors had high hopes that the Federal Reserve was about to embark on a rate-cutting campaign that would reverse some of the most aggressive policy tightening in decades.
Three months of inflation data have brought those expectations back down to earth.

March’s consumer price index report Wednesday helped verify worries that inflation is proving stickier than thought, giving credence to caution from Fed policymakers and finally dashing the market’s hopes that the central bank would be approving as many as seven rate cuts this year.
“The math suggests it’s going to be hard near term to get inflation down to the Fed’s target,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Not that you’ve put a pin in inflation getting to the Fed’s target, but it’s not happening imminently.”
There was little good news to come out of the Labor Department’s CPI report.
Both the all-items and ex-food and energy readings were higher than the market consensus on both a monthly and annual basis, putting the rate of inflation well above the Fed’s target. Headline CPI rose 0.4% on the month and 3.5% from a year ago, ahead of the central bank’s 2% goal.

Danger beneath the surface

But other danger signs beyond the headline numbers emerged.

Services prices, excluding energy, jumped 0.5% and were up 5.4% from a year ago. A relatively new computation the markets are following which takes core services and subtracts out housing — it has come to be known as “supercore” and is watched closely by the Fed — surged at an annualized pace of 7.2% and rose 8.2% on a three-month annualized basis.
There’s also another risk in that “base effects,” or comparisons to previous periods, will make inflation look even worse as energy prices in particular are rising after falling around the same time last year.

All of that leaves the Fed in a holding position and the markets worried about the possibility of no cuts this year.
The CME Group’s FedWatch tool, which computes rate-cut probabilities as indicated by futures market pricing, moved dramatically following the CPI release. Traders now see just a slim chance of a cut at the June meeting, which previously had been favored. They have also pushed out the first reduction to September, and now expect only two cuts by the end of the year. Traders even priced in a 2% probability of no cuts in 2024.
“Today’s disappointing CPI report makes the Fed’s job more difficult,” said Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth. “The data does not completely remove the possibility of Fed action this year, but it certainly lessens the chances the Fed is cutting the overnight rate in the next couple months.”

CNBC news on inflation

Market reaction

Markets, of course, didn’t like the CPI news and sold off aggressively Wednesday morning. The Dow Jones Industrial Average dropped by more than 1%, and Treasury yields burst higher. The 2-year Treasury note, which is especially sensitive to Fed rate moves, jumped to 4.93%, an increase of nearly 0.2 percentage point.
There could yet be good news ahead for inflation. Factors such as rising productivity and industrial capacity, along with slower money creation and easing wages, could take the pressure off somewhat, according to Joseph LaVorgna, chief economist at SMBC Nikko Securities.
However, “inflation will remain higher than what is necessary to warrant Fed easing,” he added. “In this regard, Fed cuts will be pushed out to into the second half of the year and are likely to fall only 50 basis points [0.5 percentage point] with risks being tilted in the direction of even less easing.”
In some respects, the market has only itself to blame.
The pricing in of seven rate cuts earlier this year was completely at odds with indications from Fed officials. However, when policymakers in December raised their “dot plot” indicator to three rate cuts from two projected in September, it set off a Wall Street frenzy.
“The market was just way over its skis in that assumption. That made no sense based on the data,” Schwab’s Sonders said.
Still, she thinks if the economy stays strong — GDP is projected to grow at a 2.5% rate in the first quarter, according to the Atlanta Fed — the knee-jerk reaction to Wednesday’s data could pass.
“If the economy hangs in there, I think the market is, for the most part, OK,” Sonders said.
Correction: The markets are worried about the possibility of no cuts this year. An earlier version misstated the worries.

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The consumer price index, a key inflation gage, rose 3.5% in March, higher than expectations and marking an acceleration for inflation.
Shelter and energy costs drove the increase on the all-items index. Energy rose 1.1% after increasing 2.3% in February, while shelter costs were higher by 0.4% on the month and up 5.7% from a year ago.
Following the report, traders pushed the first expected rate cut out to September, according to CME Group calculations.

The consumer price index accelerated at a faster than expected pace in March, pushing inflation higher and likely dashing hopes that Federal Reserve will be able to cut interest rates anytime soon.
The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3 percentage point higher than in February, the Labor Department’s Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.3% gain and a 3.4% year-over-year level.

Excluding volatile food and energy components, core CPI also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago, compared to respective estimates for 0.3% and 3.7%.

Stock market futures slumped following the report while Treasury yields spiked higher.
Shelter and energy costs drove the increase on the all-items index.
Energy rose 1.1% after increasing 2.3% in February, while shelter costs, which make up about one-third of the weighting in the CPI, were higher by 0.4% on the month and up 5.7% from a year ago. Expectations for shelter-related costs to decelerate through the year have been central to the Fed’s thesis that inflation will cool enough to allow for interest rate cuts.
Food prices increased just 0.1% on the month and were up 2.2% on a year-over-year basis. There were some big gains within the food category, however.

The measure for meat, fish, poultry and eggs climbed 0.9%, pushed by a 4.6% jump in egg prices. Butter fell 5% and cereal and bakery products declined by 0.9%. Food away from home increased 0.3%.
Elsewhere, used vehicle prices declined 1.1% and medical care services prices rose 0.6%.

The report comes with markets on edge and Fed officials expressing caution about the near-term direction for monetary policy. Central bank policymakers have repeatedly called for patience on cutting rates, saying they have not seen enough evidence that inflation is on a solid path back to their 2% annual goal. The March report likely confirmed worries that inflation is stickier than expected.
Markets had expected the Fed to start cutting interest rates in June with three reductions in total expected this year, but that shifted dramatically following the release. Traders in the fed funds futures market pushed expectations for the first cut out to September, according to CME Group calculations.
“”There’s not much you can point to that this is going to result in a shift away from the hawkish bent” from Fed officials, said Liz Ann Sonders, chief investment strategist at Charles Schwab. “June to me is definitely off the table.”
The Fed also expects services inflation to ease through the year, but that has shown to be stubborn as well. Excluding energy, the services index increased 0.5% in March and was at a 5.4% annual rate, inconsistent with the Fed’s target.
“This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip,” said Seema Shah, chief global strategist at Principal Asset Management. “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.”
Later Wednesday, the Fed will release minutes from its March meeting, providing more insight into where officials stand on monetary policy.
Multiple Fed officials in recent days have expressed skepticism about lowering rates. Atlanta Fed President Raphael Bostic told CNBC that he expects just one cut this year, likely not coming until the fourth quarter. Governor Michelle Bowman said an increase may even be necessary if the data do not cooperate. More

The World Trade Organization on Wednesday said that it expects global trade volumes to increase by 2.6% in 2024 following a 1.2% decline in 2023.
WTO chief economist Ralph Ossa told CNBC that rebound was due to a fall in inflation and an expected normalization of monetary policy.
In a report, the WTO warned that geopolitical tensions continue to pose a significant risk to its outlook as signs of trade fragmentation rise.

Container ships from international trunk lines, including those from Europe, Africa, India, Pakistan, and Southeast Asia, are loading and unloading containers at the container terminal of the Qianwan Port Area of Qingdao Port in Qingdao, China, on April 4, 2024. 
Nurphoto | Getty Images

The World Trade Organization on Wednesday said that it expects global trade to rebound gradually this year, before rising further in 2025, as the impacts of higher inflation fall into the rearview mirror.
In its latest “Global Trade Outlook and Statistics” report, the WTO forecast that total global trade volumes will increase by 2.6% in 2024, and by a further 3.3% in 2025. It follows a larger-than-expected 1.2% decline in 2023, as inflationary pressures and higher interest rates weighed on international trade.

“The reason for this pickup is basically the normalization of inflation and also the normalization of monetary policy, which has been a drag on trade in 2023,” the WTO’s chief economist Ralph Ossa told CNBC’s Silvia Amaro.
The trade rebound is expected to be “broad-based,” including across Europe, which experienced some of the deepest falls in trade volumes last year as a result of geopolitical tensions and the energy crisis caused by Russia’s full-scale invasion of Ukraine.
“Europe was really weighing on international trade in 2023, and we don’t see that being the case anymore,” Ossa said.

Geopolitical risks remain

Overall, world trade has been “remarkably resilient” over recent years, rising above its pre-Covid-19 pandemic peak in late 2023, the WTO report concluded. However, the organization warned that geopolitical tensions could still pose a risk to its outlook.
In particular, the ongoing war between Israel and Palestinian militant group Hamas could cause major trade disruptions, should it spill over into energy markets, Ossa said.

The economist also pointed to signs of global trade “fragmentation” along geopolitical lines.
The WTO report divided the global economy into two “hypothetical geopolitical blocks” based on U.N. voting patterns and found that trade growth between the blocks was slower than within them. The U.S. and U.K. for instance, have typically taken similar positions in recent U.N. votes on the Russia-Ukraine conflict, while China and South Africa, on the other hand, have taken opposite views.
That fragmentation was especially notable between the world’s two largest economies, the U.S. and China.
“We’ve seen that trade growth between the United States and China was 30% slower than trade growth between these countries and other countries,” Ossa said, referring to the period since 2018, when trade tensions initially arose.
“That doesn’t mean that they are not still trading a lot, but their trade shares are increasingly moving away from these relationships.”
Trade tensions between the U.S. and China resurfaced this week, when U.S. Treasury Secretary Janet Yellen said she would not rule out possible tariffs on Beijing, if it is found to be engaging in unfair trade practices. The calls for a tougher stance on China were echoed on Tuesday by European Commission chief Ursula von der Leyen.
The spat centers on claims that China is “dumping” subsidized green technology goods into international markets, effectively undercutting domestic producers. Beijing denies the claims.
The WTO report does not detail China-specific trade forecasts, however it expects a 3.4% aggregate increase in Asia exports in both 2024 and 2025.
“That doesn’t mean that, in particular sectors, we couldn’t see or we don’t expect to see any surges,” Ossa said. More

The consumer price index will be released Wednesday morning and is expected to register increases of 0.3% both for the all-items measure as well as core.
On a year-over-year basis that would put respective inflation rates at 3.4% and 3.7%.
Markets have grown nervous about the state of inflation and how it will affect Fed policy.

Gas prices are displayed at a gas station on March 12, 2024 in Chicago, Illinois. 
Scott Olson | Getty Images

A closely watched Labor Department report due Wednesday is expected to show that not much progress is being made in the battle to bring down inflation.
If so, that would be bad news for consumers, market participants and Federal Reserve officials, who are hoping price increases slow enough so that they can start gradually cutting interest rates later this year.

The consumer price index, which measures costs for a wide-ranging basket of goods and services across the $27.4 trillion U.S. economy, is expected to register increases of 0.3% both for the all-items measure as well as the core yardstick that excludes volatile food and energy.
On a 12-month basis that would put the inflation rates at 3.4% and 3.7%, respectively, a 0.2 percentage point increase in the headline rate from February, just a 0.1 percentage point decrease for the core rate, and both still a far cry from the central bank’s 2% target.
“We’re not headed there fast enough or convincing enough, and I think that’s what this report is going to show,” said Dan North, senior economist at Allianz Trade North America.
The report will be released at 8:30 a.m. ET.

Progress, but not enough

North said he expects Fed officials to view the report pretty much the same way, backing up comments they’ve been making for weeks that they need more evidence that inflation is convincingly on its way back to 2% before rate cuts can happen.

“Moving convincingly toward 2% doesn’t just mean hitting 2% for one month. It means hitting 2% or less for months and months in a row,” North said. “We’re a long way from that, and that’s probably what’s going to show tomorrow as well.”
To be sure, inflation has come down dramatically from its peak above 9% in June 2022. The Fed enacted 11 interest rate hikes form March 2022 to July 2023 totaling 5.25 percentage points for its benchmark overnight borrowing rate known as the federal funds rate.
But progress has been slow in the past several months. In fact, headline CPI has barely budged since the central bank stopped hiking, though core, which policymakers consider a better barometer of longer-term trends, has fallen about a percentage point.

While the Fed watches the CPI and other indicators, it focuses most on the Commerce Department’s personal consumption expenditures index, sometimes referred to as the PCE deflator. That showed headline inflation running at 2.5% and the core rate at 2.8% in February.
For their part, markets have grown nervous about the state of inflation and how it will affect rate policy. After scoring big gains to start the year, stocks have backed off over the past week or so, which have seen sharp swings as investors tried to make sense of the conflicting signals.
Earlier this year, traders in the fed funds futures market were pricing in the likelihood that the central bank would start reducing rates in March and continue for as many as seven cuts before the end of 2024. The latest pricing indicates that the cuts won’t start until at least June and not total more than three, assuming quarter-percentage point increments, according to the CME Group’s FedWatch calculations.
“I don’t see a whole lot here that is going to move things magically the way they want to go,” North said.

What to watch

There will be a few key areas to watch in Wednesday’s report.
Beyond the headline numbers, trends in items such as shelter, airfares and vehicle prices will be important. Those areas have been bellwethers during the current economic cycle, and moves either way could suggest longer-term trends.
Economists at Goldman Sachs expect outright declines across air travel-related items as well as vehicle sticker prices, and see smaller shelter cost increases, which make up about one-third of the CPI weighting. A New York Fed survey released Monday, however, showed a sharp uptick in expectations for rental costs over the next year, which is bad news for policymakers who frequently have cited decelerating housing costs as the cornerstone to their easing inflation thesis.
Similarly, the National Federation of Independent Business survey for March, released Tuesday, showed confidence among small businesses at its lowest level in more than 11 years, with owners citing inflation as their top concern.
“Inflation is cumulative, and that’s why prices still feel high,” North said. “People still can’t believe how high prices are.”
Gas prices also could play an important role in the CPI release after rising 3.8% in February. Though the gasoline index is relatively unchanged over the past two years, it’s still up more than 70% from April 2020 when the brief Covid-driven recession ended. Food is up about 23% during the same period.

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The NFIB’s business optimism survey showed a reading of 88.5, down nearly a point from February and the lowest since December 2012.
A quarter of all respondents cited inflation, and in particular higher input and labor costs, as their most pressing issue.

A man checks the label of a vitamins jar at a Costco Wholesale store on April 3, 2024 in Colchester, Vermont. 
Robert Nickelsberg | Getty Images

Small business confidence hit its lowest level in more than 11 years for March as proprietors worried that inflation is still very much a problem.
At a time when other data points show inflation receding, the National Federation of Independent Business reported Tuesday that its survey showed a reading of 88.5, down nearly a point from February and the lowest since December 2012.

A quarter of all respondents reported that rising costs were the biggest problem.
“Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” NFIB Chief Economist Bill Dunkelberg said. “Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”
A quarter of all respondents cited inflation, and in particular higher input and labor costs, as their most pressing issue. A net 28% reported raising average selling prices for the month and 33% planned additional price hikes, according to seasonally adjusted data.
As part of those escalating costs, a net 38% said they raised compensation, up 3 percentage points from the February reading that was the lowest since May 2021. The Labor Department on Friday reported that average hourly earnings rose 0.3% in March and 4.1% from a year ago.

The survey comes with other indicators showing that inflation, while not eradicated, is at least receding.

A Commerce Department measurement of personal consumption expenditures prices put the annual inflation rate at 2.5% in February. The measurement, which the Federal Reserve uses as its main inflation gauge, showed a 2.8% level when excluding food and energy, which policymakers prefer as a better sign of longer-run trends.
The consumer price index, a more widely watched figure by the public, will be released Wednesday and is expected to show a 3.4% headline rate and 3.7% on core. Fed policymakers target 2% annual inflation.
Inflation expectations have been fairly well-anchored in recent months. A New York Fed survey on Monday showed respondents for March expected a 3% rate over the next year, unchanged from February. The three-year outlook rose slightly but the five-year expectation decreased.
However, the survey did show a big jump in the expectations for rent increases — by 8.7% over the next year, a 2.6 percentage point surge from February. Declining shelter inflation is at the core of the Fed’s thesis that inflation will continue to ebb toward the central bank’s 2% target, allowing for interest rate cuts later in the year.
Fed survey respondents also said they expect prices to rise substantially for most other major components. They see gas prices up 4.5% in the next year and food up 5.1%, both 0.2 percentage points higher than the February survey.

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The moon eclipses the sun during a total solar eclipse across North America, in Bloomington, Indiana, on April 8, 2024.
Josh Edelson | AFP | Getty Images

Today marks a total solar eclipse that is expected to cross the United States as millions of Americans try to position themselves in the path of totality to capture this celestial moment. The next time an eclipse of this magnitude will cross the U.S. will be on Aug. 23, 2044. Towns in the path of totality are preparing for an influx of people vying for the ultimate viewing experience and providing an economic boon.

Bloomington, Indiana

Signage advertising the total solar eclipse in Bloomington, Indiana, US, on Sunday, April 7, 2024. 
Chet Strange | Bloomberg | Getty Images

Houlton, Maine

Visitors look through a pair of oversized eclipse glasses set up in the town square on April 07, 2024, in Houlton, Maine. 
Joe Raedle | Getty Images

Cheryll Simmons-Heit, wearing a moon, and Johanna Johnston, wearing a sun, participate in the Solar Sprint 3k on April 07, 2024 in Houlton, Maine. 
Joe Raedle | Getty Images News | Getty Images

Dawn MacDonald (R), the owner of Crowe’s Tattoos, places an eclipse tattoo on the arm of Morgan Flewelling (L) on April 07, 2024, in Houlton, Maine. 
Joe Raedle | Getty Images

Miriam Toy (L) and Oliver Toy share a pair of eclipse glasses that NASA was handing out as they await the eclipse on April 08, 2024, in Houlton, Maine. 
Joe Raedle | Getty Images

Fredericksburg, Texas

A sign displaying ‘No School’ is seen at Fredericksburg middle school ahead of the total solar eclipse on April 07, 2024 in Fredericksburg, Texas. 
Brandon Bell | Getty Images

Carbondale, Illinois

Eclipse-themed T-shirts are offered for sale at a science fair at Southern Illinois University on April 07, 2024 in Carbondale, Illinois. 
Scott Olson | Getty Images

People gather in a field on the campus of Southern Illinois University to prepare for the start of the total eclipse on April 08, 2024 in Carbondale, Illinois.
Scott Olson | Getty Images

Orlando, Florida

Special OREO donuts from Krispy Kreme are shown in a picture illustration in Orlando. The celestial-themed donuts went on sale today to celebrate the total solar eclipse on April 8, 2024. 
Paul Hennessy | Lightrocket | Getty Images

Pinchneyville, Illinois

Solar eclipse t-shirts are offered for sale at Audra’s Footprint on April 05, 2024 in Pinckneyville, Illinois. 
Scott Olson | Getty Images

Makanda, Illinois

Brittany Sunderman and Gianna Debenham, 6, from Effingham, Illinois, and other members of the Debenham family who travelled from Utah and Las Vegas to experience the total solar eclipse together, try out their eclipse viewing glasses at their campsite a day ahead of the event at Camp Carew in Makanda, Illinois, U.S., April 7, 2024.
Evelyn Hockstein | Reuters

Niagara Falls, Ontario

People sit next to the Horseshoe Falls in Niagara Falls, Ontario, Canada, on April 8, 2024 as they prepare for the total eclipse which is set to pass over the region later in the day. 
Geoff Robins | AFP | Getty Images

Some of the 309 people gathered to break the Guinness World Record for the largest group of people dressed as the sun pose on a sightseeing boat, before the total solar eclipse in Niagara Falls, Ontario, Canada April 8, 2024. 
Jenna Zucker | Reuters

Russellville, Arkansas

A youngster looks at the sun through binoculars at the Total Eclipse of the Heart festival on April 8, 2024 in Russellville, Arkansas.
Mario Tama | Getty Images

Wapakoneta, Ohio

Thousands of people descend on the Neil Armstrong Air and Space Museum to view the total solar eclipse on April 8, 2024 in Wapakoneta, Ohio. 
Matthew Hatcher | Getty Images

New York City

People gather on the observation deck of Edge at Hudson Yards before a partial solar eclipse in New York City, New York, U.S., April 8, 2024. 
Eduardo Munoz | Reuters

The Statue of Liberty is seen during a partial solar eclipse, where the moon partially blocks out the sun, at Liberty Island in New York City, U.S., April 8, 2024. 
David Dee Delgado | Reuters

Mazatlan, Mexico

A youngster and a woman prepare their telescopes as people gather and wait to observe a total solar eclipse in Mazatlan, Mexico April 8, 2024.
Henry Romero | Reuters

Fort Worth, Texas

The moon begins to eclipse the sun on April 8, 2024 in Fort Worth, Texas. 
Ron Jenkins | Getty Images

Russelville, Arkansas

A bride and groom view the solar eclipse amid a darkened sky after marrying at a mass wedding at the Total Eclipse of the Heart festival on April 8, 2024 in Russellville, Arkansas.
Mario Tama | Getty Images

Couples view the solar eclipse during a mass wedding at the Total Eclipse of the Heart festival on April 8, 2024 in Russellville, Arkansas. 
Mario Tama | Getty Images

Warren, Vermont

People assemble to view the total solar eclipse at Sugarbush ski resort in Warren, Vermont, U.S. April 8, 2024. 
Lauren Owens Lambert | Reuters

Washington, D.C.

The U.S. Capitol Building is visible as people view the partial solar eclipse on Capitol Hill on April 8, 2024 in Washington, DC. 
Andrew Harnik | Getty Images

Los Angeles, California

Duke Brobby watches the solar eclipse at Griffith Observatory on Monday, April 8, 2024 in Los Angeles, CA. 
Brian Van Der Brug | Los Angeles Times | Getty Images

Totality in Eagle Pass, Texas

A total solar eclipse is seen from Eagle Pass, Texas, U.S. April 8, 2024. 
Christian Monterrosa | Reuters More