All eyes were on US inflation, the last CPI data before the next Federal Open Market Committee meeting on May 3. Despite the gradual cooling in hiring in March as shown by data released on Friday by the US Bureau of Labor Statistics, the labor market still remains resilient. This raised the sentiment that the Fed will hike interest rate by 25 bps at its next meeting. Before the release of CPI, the CME FedWatch Tool was showing 75.8% of the central bank increasing its target range to 5.00% – 5.25%.
Statements from Fed officials showed different views on whether to raise rates once more (majority). On Tuesday, Philadelphia Fed President Patrick Harker said he was in favor of hiking rates above 5.00% and keeping them there for a while.
US headline inflation rose at a slower pace while core inflation accelerated. According to the US Bureau of Labor Statistics, the CPI slowed to 5.0% year-over-year in March 2023, from 6.0% the prior month and below market forecasts of 5.2%. Core CPI increased to 5.6% in March 2023 from 5.5% in February and in line with market forecasts.
After the release of the data, the CME FedWatch Tool was still showing a higher probability of a 25 bp rate hike at the next Fed meeting. US stock futures and Treasuries increased.