U.S. Producer Prices and Retail Sales Decrease, Raising Doubts About Fed’s Interest Rate Hike Next Week
In a surprising turn of events, the US producer price index (PPI) fell unexpectedly in February, indicating a slowdown in the economy. This news has sparked speculation that the Federal Reserve System (Fed) may freeze interest rates at its March Open Market Committee (FOMC) meeting.
As of March 15, the probability of the Fed freezing the benchmark rate at the current 450bp-475bp level at the March FOMC meeting is 64.6%, a significant increase from 30.6% the day before and 0% a week ago. In contrast, the probability of the Fed raising interest rates by 25 basis points has fallen to 35.4%, down from 69.4% the day before.
The Fed’s decision to freeze interest rates would be in line with the recent trend in economic data, which has been mixed. According to the US Department of Labor, the producer price index (PPI) fell 0.1% in February from the previous month, while Dow Jones analyst survey expected a 0.3% rise. On a year-on-year basis, February PPI rose 4.6% compared to January’s 5.7%. Furthermore, retail sales in the US fell 0.4% month-over-month in February, according to data released on the same day.
Despite the downward trend in inflation and the recent turmoil in the banking industry, CNBC reported that financial markets are still expecting a 25 basis point rate hike from the Fed next week. However, the Fed’s rate peak, as reflected in interest rate futures prices, was around 4.77%, suggesting that this rate hike may be the final one in this cycle.
In conclusion, the US economy is showing signs of slowing down, and the Fed may choose to freeze interest rates to prevent a further slowdown. The market is currently split on whether the Fed will raise rates or not, and only time will tell what the Fed’s decision will be. Investors will be watching the March FOMC meeting closely to see how the Fed responds to the changing economic landscape.
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