Wall Street comments on US CPI: Opening the door for rate cuts this year, enough to make the Fed cut rates in September

The U.S. Bureau of Labor Statistics released data on Wednesday showing that the U.S. CPI in April increased by 3.4% year-on-year, in line with expectations, slightly down from the previous value of 3.5%; the CPI in April increased by 0.3% month-on-month, lower than the expected and previous value of 0.4%. Excluding food and energy costs, the core CPI in April saw a decrease in the month-on-month growth rate from 0.4% in March to 0.3%, marking the first decline in 6 months, in line with expectations of 0.3%.

Following the release of the report, Wall Street analysts have expressed that this CPI data has opened the door for the Fed to cut interest rates, with a general belief that even if the inflation data in April may not prompt the Fed to cut rates in July, it is sufficient to start cutting rates from September.

Here are some initial reactions from active Wall Street economists and strategists to the release of the CPI data.

Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, said:

"This does open the door for potential rate cuts later this year. Of course, more readings showing a decline in inflation are still needed before the Fed takes action."

Neil Birrell, Chief Investment Officer at Premier Miton Investors, said:

"The daily excitement surrounding U.S. inflation has ultimately proven to be a non-event, as the results were completely in line with expectations. However, weaker-than-expected retail sales data and a return of core inflation to levels not seen for quite some time may prompt calls for rate cuts, potentially leading to a market rebound."

Analysts at Capital Economics said:

"The core CPI is better than it seems, especially considering that we already know that the PPI components feeding into the Fed's preferred PCE inflation measure have generally been lower than expected. We estimate that core PCE increased by about 0.20% month-on-month. Taking everything into account, this is consistent with expectations of a Fed rate cut in September."

David Russell, Director of Global Market Strategy at TradeStation, said:

"Housing costs did not decrease as expected, but there were improvements in transportation and healthcare. This number is not perfect, but we are gradually moving towards lower inflation. Weak retail sales data and the soft New York Fed manufacturing index also indicate a slowdown in growth, keeping the possibility of rate cuts alive. This is a triple positive news."

Florian Lepo from Lombard Odier Asset Management said:

"With this inflation data meeting expectations, interest rates may be pushed lower in real terms, falling below the 4.4% level. This will be followed by a depreciation of the dollar, which will support most dollar-denominated assets."

Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, said:

"Overall, price pressures remain high but are moving in the right direction. We believe these data support the Fed taking a patient approach in future policy decisions, although the underlying conditions still point to rate cuts this yearAmeriVet Securities' Head of US Interest Rates Department, Gregory Faranello:

"In general, these data are friendly to the Federal Reserve, whether it's CPI or retail sales data. Both show a moderate trend, which is exactly what the Fed wants to see. These numbers may support the shift from Powell's 'keeping rates higher for longer' to lower levels."

However, some analysts hold a conservative view, believing that weaker-than-expected retail data could be a major concern. Ira Jersey, Head of Bloomberg's Interest Rates Department, said:

"The market's significant reaction to the apparent slowdown in retail sales may be greater than the expected CPI. Sales data often lead commodity CPI by several months. While the CPI report is in line with expectations, this emphasizes the low-volatility core CPI sector contributing close to a 4% year-on-year increase, while the high-volatility sector (currently typically the commodity sector) has almost no contribution. Therefore, despite the data meeting expectations overall, inflation remains higher than the Fed's comfort level, indicating that a rate cut is unlikely in the short term."

Nick Timiraos, a Wall Street Journal reporter known as the "New Fed News Agency," stated:

"One good data point cannot offset three unfavorable ones. Officials may need a few more months to recover from first-quarter inflation PTSD. Of course, this reduces the risk of a shift to a neutral bias, such as the possibility of starting rate hikes."