Inflation worries weigh on US stocks, dampens rate cut hopes

The higher CPI print will restrict the Federal Reserve from making rate cuts, said analysts. (Image: Pexels)

Stocks in the US market fell on Wednesday, April 10 after March CPI data came in higher than expected. This further dampened investor hopes for a rate cut by the Fed.

The Dow Jones Industrial Average tanked 422.16 points or 1.09% to close the day’s trading at 38,461.51. The S&P 500 slipped 0.95% to finish at 5,160.64. While the tech-heavy Nasdaq Composite fell 0.84% to settle at 16,170.36.

The core inflation index for all items excluding food and energy rose 0.4% in March, as it did in each of the 2 preceding months. The core inflation index excluding the food and energy index rose 3.8% on year.

The inflation rate in the US has risen for a second straight month to 3.5% in March. In February, the inflation rate stood at 3.2%.

“March inflation print coming at 3.5 % on an annual basis against the expectation of 3.4 %  will certainly constrain the ability of the Fed to cut rates. This acceleration in price rise from 3.1% in January and 3.2% in February to 3.4% in March has dashed hopes of a rate cut in June. This year began with market expectations of six rate cuts. Now the expectation has come down to a maximum of three, perhaps two. Even now a total of 50bp rate cut is possible this year and these will be backloaded,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“US CPI print at 3.5% came in higher than expectation of 3.4% raising some doubts on the Fed pivot on interest rate in June policy. Inflation has shown signs of stickiness leading to a lower possibility of it reaching the US Fed target of 2%. The Fed has reiterated on multiple occasions that the committee is in no hurry to cut rates till concrete disinflation signs are visible,” said Vaibhav Shah, Fund Manager at Torus ORO PMS.