Economist and former U.S. Treasury Secretary Lawrence Summers believes the next move from the Federal Reserve regarding interest rates could be a surprise rate hike.
Summers made his shocking statement yesterday in an interview with Bloomberg Television following the release of the March consumer-price index (CPI) report, which showed hotter-than-expected headline and core inflation. Core inflation date removes volatile food and energy prices from the equation.
Data in the March report showed the CPI rose 0.4% for the month to 3.5%, up 0.3% compared to February. Analysts and economists were expecting only a 0.3% rise to 3.4%.
The March Core CPI also increased by 0.4%, rising to 3.8%. Analysts and economists were expecting a 0.3% increase to 3.7%.
Rising gas prices and high mortgage and rent costs were the main drivers behind the higher-than-expected March CPI data.
It should be noted that Summers still believes the odds of the Fed’s next move being a rate cut still outweigh the odds of it being a rate hike.
President Biden also weighed in on the March CPI report, acknowledging there is “more to do” in the fight against inflation, commenting:
“Today’s report shows inflation has fallen more than 60% from its peak, but we have more to do to lower costs for hardworking families. Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago.”
As expected, the hot inflation data in the March CPI report has caused a significant recalibration in the Fed interest rate decision odds.
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According to the CME FedWatch Tool, here are how the odds for the Fed’s upcoming 2024 interest rate decisions currently stand:
- May 2024:
- Hold Steady: 97.8%
- 0.25% Rate Cut: 2.2%
- June 2024
- Hold Steady: 74.1%
- 0.25% Rate Cut: 25.4%
- 0.5% Rate Cut: 0.5%
- July 2024
- Hold Steady: 48.8%
- 0.25% Rate Cut: 42%
- 0.5% Rate Cut: 9%
- 0.75% Rate Cut: 0.2%
- September 2024
- Hold Steady: 28.1%
- 0.25% Rate Cut: 44.7%
- 0.5% Rate Cut: 23%
- 0.75% Rate Cut: 4.1%
- 1% Rate Cut: 0.2%
Markets bounced back today following yesterday’s decline, with the S&P 500 rising +0.74% to 5,199.06 and the NASDAQ Composite jumping +1.68% to 16,442.20. The Dow closed today flat, down -0.01% at 38,459.08.
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