US April CPI rise gives Fed little room to ease

NEW YORK (Reuters) – U.S. consumer prices increased in April on higher gasoline costs and rents, while underlying inflation remained strong as used motor vehicle prices rebounded, potentially ensuring that the Federal Reserve keeps interest rates elevated for a while.

The Consumer Price Index (CPI) rose 0.4% last month after gaining 0.1% in March, the Labor Department said on Wednesday. In the 12 months through April, the CPI increased 4.9% after advancing 5.0% on a year-on-year basis in March.

MARKET REACTION:

STOCKS: U.S. stock index futures turned 0.68% higher, pointing to a strong open on Wall Street BONDS: U.S. Treasury yields fell, with 2-year note last at 3.349%, and the 10-year note down at 3.4597%FOREX: The euro turned 0.28% higher against the U.S. dollar, while the was off 0.28%

COMMENTS:

ANDRE BAKHOS, MANAGING MEMBER, INGENIUM ANALYTICS LLC, PLAINSBORO, NEW JERSEY.

“It’s not good enough for the market in the short term because it still leaves question marks as to what the Fed is going to do in the next meeting.”

    “It’s not a number where the Fed could relax,  therefore investors could have confidence this is still going to hang over the market’s head and that coupled with a narrow leadership in equity markets in addition with the uncertainty around the debt ceiling is going to create some near-term consternation.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“April’s inflation numbers were spot-on with expectations. The tightening of the screws in the credit markets will likely only have a gradual effect on growth and inflation. Inflation is still too high, so the Fed’s narrative won’t likely change. They will stick with the story that they have no intention of cutting. Their opinions can change with the wind, and the data, though.”

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