Fed seen waiting until September to cut rates

The Federal Reserve will wait until September to start cutting interest rates, traders bet on Wednesday, after a government report showed inflation was stronger than expected last month for a third month in a row.

U.S. short-term interest-rate futures plunged after the report, which showed the core consumer price index rose 0.4% in March from a month earlier, and overall inflation accelerated to 3.5% from a year earlier, up from 3.2% in February. The Fed targets 2% inflation.

Traders bet the backtracking on price pressures rules out June for a first Fed rate cut, and makes even a July rate cut as less than likely. Based on rate-futures pricing, the Fed is seen delivering a first quarter-point interest rate cut at its September 17-18 meeting, bringing the policy rate target to a 5%-5.25% range, with just one more rate cut likely by the end of the year.


"I think a July rate cut is still possible," said Oliver Pursche, senior vice president at Wealthspire Advisors. "There are several key data points that will be coming in before then, but I would be surprised if A) there was a June cut and B) if there will be more than two cuts this year."

Traders and analysts alike had until this morning expected three rate cuts this year, a forecast that Fed policymakers last month had also signaled was their base case.