STOCK MARKETS TODAY: Stocks sink, yields jump as inflation data douse rate cut hopes

Economists are weighing in after US consumer prices came in higher than expected in March. The general consensus? Don't expect a rate cut anytime soon.

"The key CPI data released today will likely determine the fate of the June FOMC meeting, and a rate cut is now highly unlikely," said Seema Shah, Simmons Global Strategist at Principal Asset Management, echoing the data. A rate cut is now highly unlikely." This marks the third strong reading in a row and means that the talk of stalled deflation can no longer be called transient.

"Indeed, even if inflation cools to a more comfortable reading next month, Fed internals are likely to be cautious enough now to mean that a July rate cut could also be a stretch - by then, the US election will start to interfere with Fed decision-making," Shah added.

Investors now expect the Fed to cut rates twice this year by 25 basis points, down from the six rate cuts expected at the start of the year, according to Bloomberg.

The Consumer Price Index (CPI) rose 0.41 TP3T in March from a month earlier and 3.51 TP3T from a year earlier, accelerating from February's annual rate of 3.21 TP3T and above economists' expectations.

The 'core' price index, which excludes the more volatile food and gas costs, rose by 0.4% in March from a month earlier and by 3.8% from a year earlier, unchanged from February. Both indicators were also higher than economists' forecasts.

Hotter data could push more policymakers "into the two rate cuts camp," said Ryan Sweet, a first-year U.S. economist at Oxford Economics.

"The Fed is inclined to cut rates this year, but the strength of the labor market and the recent rise in inflation have given the central bank room for patience," Sweet said." If the Fed doesn't cut rates in June, the window could close until September, as there is little data to change the Fed's calculations between the June and July meetings."

"The odds of the Fed cutting rates by less than 75 basis points this year are rising," he predicted.

But Greg Daco, Premier Economist at Econet, cautioned investors to be patient: "I think we have to be very careful about this idea that this is a step-by-step process."

In an interview with Yahoo! Finance, he said, "These kinds of readings do still point to deflationary pressures on the曏. It's still moving in the right direction, and it's going to take time.

After the release of the data, according to the CME FedWatch Tool, the market sees a probability of 80% that the Fed will hold interest rates steady at its June meeting, up from about 40% the day before.

More than half of investors are also betting on the central bank to hold steady at its July meeting, with the market now widely expecting the first rate cut to come in September.

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