The relatively benign March CPI increase of 5% will likely not dissuade the Federal Reserve from seeking to hike rates in May and then pause, said Brad Conger, Conshohocken, Pa.-based deputy CIO at Hirtle Callaghan & Co.
The Bureau of Labor Statistics reported on Wednesday that the consumer price index rose 5% from a year ago in March, well below February's figure of 6%.
Economists were expecting a 5.5% CPI figure for March, according to financial data firm FactSet Research Systems.
However, Mr. Conger described the March CPI data as a "non-event."
"Our view is that the Fed will be on hold after (the May meeting) to assess the combined effects of the credit disruptions, the cumulative (Fed Funds rate) hikes, and balance sheet reductions," he said by email. "By (Thursday), the market narrative will have forgotten about this (CPI) release and moved to focus on upcoming (first quarter) earnings."
Hirtle Callaghan & Co. has $19 billion in assets under management.
The bureau noted that the March CPI figure marked the smallest 12-month increase since May 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 5.6% in March, slightly higher than the 5.5% figure recorded in February.
Andrew Patterson, Malvern, Pa.-based senior international economist at Vanguard, said the March CPI report was "mixed" as it revealed a decline in headline inflation but a tick up in core prices.
"Central bankers are likely drawing a collective sigh of relief as they see evidence of their policy decisions taking effect, including a notable slowing of rental inflation," he said by email. "The underlying drivers of inflation are tracking with our expectations of a downward trajectory, but that trajectory hinges upon the Fed recognizing that there's still more work to do."
Vanguard has $7.5 trillion in AUM.
The Fed's key short-term interest rate is now in a range of between 4.75% to 5%, after the central bank raised rates by 25 basis points at its March 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 75.8% probability that the Fed will increase rates by 25 basis points at the next meeting in early May, and a 24.2% probability it will keep rates unchanged.
However, recent turmoil in the banking industry may complicate the Fed's strategies.
On March 31, Fed Governor Lisa D. Cook said in a speech that the central bank is watching developments in the banking sector, which have "added to existing uncertainties about recovery from the pandemic shock and developments abroad."
She also noted that "recent data show greater momentum in inflation and economic activity, but recent banking developments may suggest greater headwinds for financial conditions and the economy going forward."