Inflation data signals US Fed pause in March, expect mid-year rate cut: Citi

Nathan Sheets, Global Chief Economist at Citi, predicts the first interest rate cut by the US Federal Reserve around mid-year, followed by more cuts later.

“The data that we got on inflation will give the Fed pause. But it does not change the basic narrative and we continue to expect as do the markets and many others that the Fed is going to cut in the middle of the year, and there will likely be a couple of rate cuts, even beyond that,” Sheets told CNBC-TV18.

It is widely anticipated that the Fed will hold interest rates steady for a fifth straight time at its next meeting on March 19-20.

Much of the focus by investors will now be on any changes to the Federal Open Market Committee’s quarterly forecasts for rates, including tweaks due to fresh employment and inflation figures.

According to data released by the US Bureau of Labor Statistics, US consumer price index (CPI) rose 3.2% compared to the same month last year, mostly in line with expectations. The month-on-month increase was 0.4%. Excluding food and energy prices, the core CPI also rose by 0.4% from the previous month and showed a year-on-year increase of 3.8%.

| US inflation up again in February in latest sign that price pressures remain elevated

During congressional testimony last week, US Fed Chair Jerome Powell hinted that the central bank is nearing a decision to lower interest rates. However, Fed officials recently stated that they required "greater confidence" that inflation was consistently declining towards their 2% target level.

Several of the Fed’s policymakers have said they believe prices will keep declining. One reason, they suggested, is that consumers are increasingly pushing back against higher prices by seeking out cheaper alternatives.

Also Read | What experts expect from the US Fed's March policy meeting

Most economists expect the Fed’s first rate cut to occur in June, though May is also possible. When the Fed cuts its benchmark rate, over time it reduces borrowing costs for mortgages, car loans, credit cards and business loans.

For the entire interview, watch the accompanying video