The declining trend in inflation has stopped, with headline and core CPI sticking above 3%. But markets are still anticipating a FED rate cut in June, which is the reason why the US Dollar hasn’t been surging, despite making some gains this week.

The latest US Consumer Price Index (CPI) data for February which was released yesterday indicated a headline inflation rate of 0.4%, in line with expectations. Although this result is above consensus, it does not raise significant concerns about inflation pressures. Year-on-year, the headline inflation rate increased slightly to 3.2%, while core inflation, which excludes volatile food and energy prices, decreased slightly to 3.8%.

Markets Expect A June FED Rate Cut

Despite the stronger-than-expected core CPI print of +0.4% in February, investors still view June as the most likely departure point for the Federal Reserve’s normalization plans. The upcoming Federal Open Market Committee (FOMC) meeting next week presents a balance of risks.

The baseline assumption remains a balanced (or dovish) stance regarding the near-term adjustment in monetary policy. As we approach next week’s updated Summary of Economic Projections (SEP), the biggest wildcard is the Fed funds rate prediction for 2024. This projection will provide insight into the Fed’s expectations for interest rates over 2024 as well as the coming years, and could significantly impact market sentiment and pricing.