After US inflation slowed down in April, wealth managers discuss the impact and the timing of a potential interest rate cut.

Headline US inflation slowed down to 3.4 per cent in April, in a sign that price pressures are continuing to ease, albeit slowly, sparking speculation on the timing of a potential interest rate cut in 2024.

The inflation data released by the US Labor Department is in line with expectations, and a step down from 3.5 per cent in March. Core inflation, which strips out volatile food and energy costs, also eased to 3.6 per cent in April, down from 3.8 per cent in March. This marks the lowest rate since April 2021.

Meanwhile, US stocks hit record highs on the news, while government bond yields dropped.

The data comes after the US Federal Open Market Committee voted this month to keep interest rates unchanged in a 5.25 to 5.5 per cent target range, in line with expectations. The decision marks the sixth consecutive time the Fed has paused since starting its 525 basis point hike-cycle in March 2022. 

Here are some reactions from wealth managers to the latest inflation figures.

UBS Global Wealth Management
"Wednesday's US economic reports showed inflation and retail sales are cooling, supporting our base case for a soft landing. We continue to believe that more favorable data in the coming months should allow the Federal Reserve to start cutting rates this year, benefiting quality bonds and quality stocks."

Richard Flax, chief investment officer at Moneyfarm, a European digital wealth manager  
“This is a positive release and should give some more comfort that the next move in rates will be a cut. But it is still far from the Fed’s target of 2 per cent, so we wouldn't expect a swift reaction from the Fed. The Fed has been consistent in its message that the hard data is what matters, and therefore we can expect the status quo to continue for a bit longer.” 

Josh Jamner, investment strategy analyst at ClearBridge Investments
“Today’s consumer price index (CPI) print should assuage near-term fears that inflation has been re-accelerating after a string of hotter prints in the first quarter. The Fed will want to see further data showing that inflation has resumed its drift lower before gaining confidence that they can lower interest rates. However, today’s print should begin to shift the narrative back toward ‘when’ the Fed will cut in 2024 rather than ‘if’ they will cut.'

“The combination of an in-line CPI and retail sales that missed expectations largely due to revisions lower for March’s very strong numbers is rather market-friendly, with the disinflationary process looking to reassert itself. Simply put, today’s data looks like the soft landing is continuing to play out, which should help provide some stability for equity markets that have seen a fair bit of volatility over the past month as fears of a more inflationary ‘no-landing’ took hold.”

Ryan Brandham, head of global capital markets, North America at Validus Risk Management
“The latest US CPI data was mostly in line, perhaps slightly softer than expected. Concurrently, US Retail Sales data was very weak, accompanied by negative revisions to last month's data.These numbers continue to reinforce an emerging theme of a weakening US economy, but not necessarily accompanied by lower prices. The more this continues, the more this puts the Fed in a very tough spot. The market will likely take US yields and the dollar lower today, as more cuts will likely be priced in for 2024. But is this the right reaction? It would certainly be a more encouraging outcome to see asset prices rise on actual progress against inflation, rather than simply slower growth. Just because the US economy is slowing doesn’t necessarily mean that inflation will return all the way to target.”

Tiffany Wilding, economist at PIMCO
"Though markets appeared relieved that the closely-watched inflation data did not show a larger-than-expected increase as it did in March, we still view the data as worrying since the US will need a more substantial deceleration in the prices of consumer goods before the Federal Reserve considers easing monetary policy. We see the core Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation measure, tracking at 3.2 per cent quarter-over-quarter on a seasonally adjusted annual basis, meaning the core PCE would need to average 0.2 per cent m/m for the rest of the year to decelerate to 3 per cent. We expect core PCE in April to be 0.27 per cent. The data does not change our expectations that the Federal Reserve will delay rate cuts until it sees more sustained deceleration in inflation, which means in 2024 there’s a possibility that policymakers will keep rates on hold."