Rate Hike Still Expected in May
Despite the revised June forecast, economists led by Jan Hatzius still predict a rate hike during the Fed's May meeting. This latest update aligns Goldman Sachs' expectations with those of other investors.
Market Expectations Following Inflation Report
CME interest rate futures remained mostly unchanged after Wednesday's inflation report. Traders anticipate a 25 basis point rate hike in May, no hike in June, and a significant possibility of a rate cut in July.
Factors Behind the Revised Forecast
Goldman Sachs' updated forecast is due to indications that banks are tightening lending following the recent collapse of Silicon Valley Bank. Additionally, some Fed officials seem uncertain about a May rate hike, further influencing the decision to remove the June hike from the forecast.
BofA Global Research on March Inflation Data
BofA Global Research stated in a client note that the March inflation data likely keeps the U.S. central bank on track for a May rate hike, despite the improvement in inflation numbers.
Fed's Inflation Control Impacting Economy and Prices
The Fed's aggressive efforts to control decades-high inflation appear to soften the economy and affect prices, as recent indicators suggest, including Wednesday's inflation report.
March CPI Data Details
Labor Department data revealed that headline and core CPI in March increased by 0.1% and 0.4% month-on-month, respectively. Economists had expected a rise of 0.2% and 0.4%. The year-over-year headline number rose by 5%, compared to the anticipated 5.2% increase, while the core measure climbed by 5.6%, in line with consensus estimates.