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Retreating US inflation and Fed minutes dampen interest rate worries

The inflation rate in the US continued to weaken significantly in March, reaching its lowest level since May 2021. The continuous decline in inflation could provide the US Federal Reserve with some flexibility in the further direction of its monetary policy. In the minutes of the last interest rate decision published last night, the Fed already emphasized that it would no longer raise interest rates so sharply against the backdrop of the banking crisis. Although this provided some relief regarding interest rate worries on the stock markets, investors remain unsettled due to the risks of further turbulence in the banking sector. 

Alessandro Fezzi, LGT
Tempo di lettura
5 minuto
US Consumer Prices
© Shutterstock

Consumer prices in the US rose by 5.0% year-on-year in March. Analysts had expected an average of 5.1%. This means that inflationary pressure continued to cool significantly compared with the previous month when an inflation rate of 6.0% was measured. Month-on-month, too, consumer prices rose by 0.1% in March, only half as much as expected. However, at its core, i.e. excluding energy and food prices, the inflation rate of 5.6% was a tad higher than the 5.5% recorded in the previous month. 

The Federal Reserve dampened expectations of further interest rate hikes, referring in its minutes (Minutes) of the March 22 interest rate meeting to the uncertainties arising from the turmoil in the financial sector. It said the likelihood that the US economy could slip into a "mild recession" later this year had increased. As a result, the Fed could also refrain from raising key interest rates further on its next interest rate decision on May 3. 

On Wall Street, the Dow Jones Industrial declined 0.11% to 33,646.50 points and the S&P 500 fell 0.41% to 4,091.95 points. On the technology-heavy Nasdaq, the indices lost about 0.9%. The US dollar weakened against the euro and fell after the inflation data to the lowest level since early February. The yield on ten-year US government bonds fell to 3.41%. 

Asia's stock markets followed the negative guidance from overseas. In Hong Kong, the Hang Seng Index slipped 0.5% and the Hang Seng Tech Index fell 1%. In mainland China, the Shanghai Composite was marginally higher, and the Shenzhen Component fell 0.5%. China's exports unexpectedly rose nearly 15% in March from a year earlier. The increase surprised analysts who had expected another decline after a slump in January and February. In Tokyo, the Nikkei 225 rose a moderate 0.15%. 

According to ECB Governing Council member Francois Villeroy de Galhau, inflation in the euro area could prove more stubborn than previously assumed. The French central bank chief referred to the core inflation rate, which, in contrast to the overall inflation rate, has risen recently. In March, the core consumer price inflation rate reached a record high of 5.7%, while the overall inflation rate in the eurozone fell significantly from 8.9% in February to 6.9% in March. The eurozone, he said, is facing the "risk of entrenched inflation" and is determined to push inflation back toward the targeted two percent rate by the end of 2024 or the end of 2025.

Corporate news in focus: VAT and Givaudan report Q1 sales figures. Julius Baer, Beiersdorf and Stellantis hold their AGMs. In the UK, Tesco presents its annual figures. In the US, Delta Air Lines publishes its Q1 figures. 

Economic data in focus: Germany consumer prices for March and trade balance for February and from the UK the data on industrial production in February (08:00 CET). Further industrial production figures for February from Italy (10:00) and the euro zone (11:00). In the US, producer prices for March and weekly initial jobless claims will be published at 14:30.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.