US CPI (TUE): The rate of headline CPI is expected to rise +0.4% M/M in February (prev. +0.3%), while the core rate of inflation is expected to rise +0.3% M/M (prev. +0.4%). Traders upped hawkish bets on the expected path for policy rates following January’s pick-up in CPI and will look to the February data to help refine expectations of when the Fed is likely to cut rates. Currently, the market has discounted the prospects of three rate cuts this year and assigns a decent probability of a fourth. Policymakers have been looking through a single months’ data, and are focussed on recent trend rates; in January, the rate of 3-month annualised core CPI rose to 3.9% (from 3.3%), while the 6-month annualised rate rose to 3.5% (from 3.2%).
Fed Chair Powell this week told lawmakers that while inflation remains above 2%, it has eased substantially of late. Still, Powell stated that it would not be appropriate to reduce the policy rate until policymakers had greater confidence that inflation was moving sustainably towards 2%, adding that they were not looking for inflation to move all the way down to 2%, instead, the sustainability of the move was more important in assessing the outlook. He also said that the Fed was not looking for ‘better’ inflation readings than we have had recently, but was looking for more of what we have seen.