April's lower-than-expected April inflation figure provided a "sigh of relief to a market on edge" and may give the Federal Reserve an excuse not to hike interest rates at its next meeting, said Alexandra Wilson-Elizondo, co-head of portfolio management for multiasset solutions at Goldman Sachs Asset Management.
The Bureau of Labor Statistics reported on Wednesday that the consumer price index rose 4.9% from a year ago in April, slightly below March's 5% increase.
However, Ms. Wilson-Elizondo said by email that she does not think "this one data point will determine the outcome of the June FOMC meeting because we still have a string of economic data to process between now and then."
Economists were expecting a 5% CPI figure for April, according to financial data firm FactSet Research Systems.
Ms. Wilson-Elizondo further noted that "we are still a meaningful distance" from the Fed's 2% inflation target, giving little reason for the Fed to cut this year. She also said the decline in price was "marginal."
"In our view, the U.S. economy remains short-staffed and central bank actions have yet to meaningfully reduce pricing power," she added. "We believe the Fed will remain on hold for longer than markets are pricing. Central bank's reaction function has been, and likely will remain, more hawkish than markets are expecting."
GSAM reported assets under supervision of $2.67 trillion as of March 31.
The bureau noted in its release that the April CPI figure marked the smallest 12-month increase since April 2021.The monthly CPI has been steadily declining since reaching 9.1% in July 2022, which marked a 40-year high.
Excluding the volatile food and energy sectors, the core CPI rose by an annualized 5.5% in April, slightly lower than the 5.6% figure recorded in March.
Johan Grahn, Minneapolis-based vice president and head of ETF strategy at Allianz Investment Management, said as the jobs market remains strong and wage growth continues to run hot, the Fed is "likely to remain focused on its inflation-killing agenda" for months ahead.
However, Mr. Grahn noted by email that issues within the regional banking sector may enable the Fed to "put in place a prudent pause on rate hikes in June, and move into a prolonged period of wait-and-see."
He added that a "Fed decision to bring rates either higher or lower from here will require significant quantifiable support, and a data-driven decision will take time to build from here."
Allianz has $19.5 billion in AUM.
The Fed's key short-term interest rate is now in a range of between 5% to 5.25%, after the central bank raised rates by 25 basis points at its May 3 meeting.
As of Wednesday morning, according to CME Group's FedWatch tool, shortly after release of the CPI data, market participants' pricing of fed fund futures indicated there is a 80.4% probability that the Fed will keep rates unchanged at the next meeting in mid-June, and a 19.6% probability it will hike by 25 basis points.
