Semafor Signals
US inflation cools for first time in 2024, prompting cautious optimism
Insights from The New York Times, The Wall Street Journal, The Washington Post
The News
The rise in the US inflation rate slowed slightly in April — a cautiously encouraging sign for weary consumers and the Federal Reserve after three months of precipitous price increases. The Consumer Price Index, a key measure of inflation, rose 3.4% last month, down from 3.5% in March. The core index, which is a measure that excludes the more volatile food and fuel prices, saw its lowest increase since 2021 at 3.6%.
In what will be welcome news for the Biden administration, too, grocery prices fell in April, and both health and car insurance rates rose more slowly than in March. But it’s not all roses: housing prices continued to climb, and gasoline prices also rose.
Ultimately, the data indicated the Fed’s strategy to rein in prices while avoiding a recession is working so far, but some economists have pointed to the gradually rising unemployment rate and slower-than-expected April job growth numbers as reason for caution.
SIGNALS
Economists caution against reckless optimism, but cheer ‘small step’
The slowdown is a “small step in the right direction,” one economist told The New York Times, but it doesn’t mean the US’ inflation problems are over. “There’s still work to be done,” another economist told The Times. Some experts were more blunt, with Harvard economist Jason Furman describing April’s data as a “relatively dull report that won’t change anything.” “Inflation is still too high,” he posted on X. The bottom line: It’s too soon to know whether inflation will continue to trend downward, but Wednesday’s report is a glimmer of optimism in a tough economy.
Fed rate cuts are still months away at least
One month’s worth of promising data isn’t enough to change the Fed’s calculus on whether to begin cutting rates, but analysts said the report won’t raise concerns of additional rate hikes, a welcome relief. It will likely take another two months’ worth of encouraging reports before the Fed can comfortably slash interest rates, pushing that possibility back to at least September. Hopes for rate cuts dimmed after March saw the third straight month of rising inflation. “We did not expect this to be a smooth road,” Fed Chair Jerome Powell said Tuesday, adding that the central bank will need to “be patient.”
European Central Bank likely to beat Fed to punch on rate cuts
The EU also got good economic news on Wednesday: Eurozone inflation is set to fall faster than expected this year. The European Central Bank, which launched an aggressive rate-hiking campaign after Russia’s 2022 invasion of Ukraine, is expected to cut rates in June. The ECB rarely diverges from its US counterpoint, and asset-management firm Alliance Bernstein predicted that beating the Fed to the punch on slashing rates could weaken the euro while boosting spending and investment. The ECB wants to “get out of the shadow” of the US,” The New York Times reported, and a divergence in policy would “reflect a widening chasm between their economies.”
