Bank of America forecasts a more moderate core CPI inflation for March, suggesting potential relief in inflationary pressures. Core CPI is expected to slightly decrease, influenced by a drop in core goods prices and lessened service price pressures, rounding to 0.2% month-on-month. The headline CPI is projected to slightly increase, rounding to 0.3% month-on-month. Such outcomes could bolster the Federal Reserve's confidence, potentially paving the way for a rate cut in June.
Key Points:
- Moderation in Core CPI: Expected to round down to 0.2% month-on-month due to a minor fall in core goods prices and reduced core services price pressures.
- Headline CPI Increase: Anticipated to round up to 0.3% month-on-month, aligning with slight inflationary pressures.
- Implications for Fed Policy: A CPI report aligning with BofA's expectations could reinforce the possibility of the Fed commencing its rate-cutting cycle in June, echoing market predictions of a 70% chance for a 25 basis point cut.
- Risks to Policy Outlook: A significantly stronger report could challenge the likelihood of a June rate cut, especially if core CPI surpasses expectations, aligning more closely with a 0.3% month-on-month increase in core PCE.
Conclusion:
Bank of America's projection of a cooler March CPI could serve as a positive signal for the Federal Reserve, maintaining the possibility of a rate cut in June. This anticipated easing of inflationary pressures, particularly in core CPI, aligns with market expectations and could reassure both the Fed and investors. However, a substantially higher inflation report may pose risks to this outlook, potentially delaying the commencement of the rate-cutting cycle.
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