Better late than never

At the beginning of 2021, when inflation was showing the first signs of rising, Fed chairman Jerome Powell was reassuring: it will be transitory, he said. Three years later, after hitting record highs on all continents, inflation is just starting to ease in the US. So one might say that it is transitory, although it took a long time.

Yesterday, US inflation for the month of March showed a slight decrease of 0.2% to come close to 5%, which was lower than expected. However, there is nothing to celebrate: while overall inflation seems to be slowly coming down, core inflation adjusted for energy and food (CPI core) tells a different story. It is barely keeping up with estimates at 5.6%. Powell's expectations now seem to be a bit off in light of the statistics, even though, let's face it, inflation is a complex thing to predict.

Based on the various indicators and information (CPI, unemployment rate, PPI, manufacturing index, banking stocks crisis...), investors expect the Fed to raise rates by 25 bps in May. And it is not certain that it will be the last one of the year.

Moreover, we are still far from the Fed's objective of bringing inflation down to 2%, a rate considered the most acceptable in the long term. And the most convenient for the Federal Reserve, in order to keep a margin of maneuver, in terms of monetary policy.

Drawing by Amandine Victor for MarketScreener