One rate strategist says he expects to see some turmoil in upcoming U.S. inflation data after the latest figures were released Thursday, adding that he expects the U.S. Federal Reserve to lower borrowing costs in June.
U.S. inflation cooled broadly in March, Bloomberg News reported, with the consumer price index (CPI) declining by 0.1 per cent compared to the previous month, marking the first decrease in almost five years. Excluding food and energy costs, the U.S. CPI increased 0.1 per cent during that same period, marking the smallest increase in nine months.
“The issue here is that this is sort of the calm before the storm. We’re going to have a lot of upheaval on the inflation data over the next couple of months,” Gennadiy Goldberg, the head of U.S. rates strategy at TD Securities, said in an interview with BNN Bloomberg Thursday.
“I don’t think the Fed is keen to move too quickly. We still think they’ll actually start to cut rates in June rather than May, so they certainly want to take their time. They want to make sure they’re not rushing into anything, and that inflation isn’t at risk of taking off unsustainably.”
He highlighted that just a few months ago, the market was pricing in around 25 basis points of cuts from the Fed this year, a number that jumped to 125 basis points about a week ago and has since settled at around 90 basis points.
“I do think the Fed is still taking this very, very cautiously, they don’t want to overreact,” Goldberg said.
“But at the end of the day, if they see that growth is starting to really soften up, and I do think they’re keeping a very close eye on that, we still think they’ll prioritize growth as long as it looks like inflation expectations are still relatively contained, which is what they look like now.”
Amid tariff uncertainty, he noted that U.S. consumer sentiment is “down in the dumps” and he is keeping an eye on high income consumers in particular. However, he said the impact on U.S. consumer sentiment has occurred across income ranges, which could be creating less demand for air travel and hotels.
Goldberg also noted that some U.S. consumers began to “pull forward” some of their purchases.
“Consumers have been pulling forward some of the things they use every day, but it looks like at least from the, from the CPI data, that maybe they forwent some travel and leisure in the in the process. So, a bit of a clamping down on some of the luxury… but really going for some of the necessities,” he said.
Over the next six to 12 months, he said he expects U.S. consumers to be a little bit more “retrenched” and growth to slow.
Goldberg said there has been consistent delays in U.S. trade policy where it is unclear what will take effect and to what extent.
“That is all weighing on (the U.S.) consumer. If that really starts to feed through into hard data, we could see growth really slow down as we get into Q2 and Q3, which is really our expectation. That should start to really pressure the market and the Fed, and that’s why we expect rate cuts starting in June,” he said, adding that the Fed is still likely to be concerned about inflation.
