Major central banks were expected to pause rate hikes soon. Now it's not so clear cut
The market has long been pricing in interest rate cuts from major central banks toward the end of 2023, but sticky core inflation, tight labor markets and a surprisingly resilient global economy are leading some economists to reassess.
Stronger-than-expected U.S. jobs figures and gross domestic product data have highlighted a key risk to the Federal Reserve potentially taking its foot off the monetary brake. Economic resilience and persistent labor market tightness could exert upward pressure on wages and inflation, which is in danger of becoming entrenched.
The headline U.S. consumer price index has cooled significantly since its peak above 9% in June 2022, falling to just 4.9% in April, but remains well above the Fed's 2% target. Crucially, core CPI, which excludes volatile food and energy prices, rose by 5.5% annually in April.
As the Fed earlier this month implemented its 10th increase in interest rates since March 2022, raising the Fed funds rate to a range of 5% to 5.25%, Chairman Jerome Powell hinted that a pause in the hiking cycle is likely at the FOMC's June meeting.
However, minutes from the last meeting showed some members still see the need for additional rises, while others anticipate a slowdown in growth will remove the need for further tightening.
Fed officials including St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari have in recent weeks indicated that sticky core inflation may keep monetary policy tighter for longer, and and that more hikes could be coming down the pike later in the year.
The personal consumption expenditures price index, a preferred gauge for the Fed, increased by 4.7% year-on-year in April, new data showed Friday, indicating further stubbornness and
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