March U.S. consumer prices rose faster than expected. The reacceleration in supercore inflation suggests the strong inflation readings at the start of the year may not have been mere blips.
Stubborn core and supercore inflation will mean that the Fed will want some more evidence that their preferred measures of inflation are moving sustainably lower according to Nikhil Mohan, Franklin Fixed Income economist.
While central banks in the United States and eurozone are gauging when to embark on monetary easing, the Bank of Japan will likely hike in April. All three will continue to monitor wages (and their impact on services inflation) and the balance of risks to economic growth.
Instead of pivoting directly toward an easing bias, the Federal Open Market Committee opted for a wait-and-watch approach in January. Franklin Fixed Income Economist Nikhil Mohan expects rate cuts to come, but not quite as soon as or as many as markets have been anticipating.
US gross domestic product surprised to the upside in the fourth quarter of 2023, primarily led by US consumers and the government. Franklin Fixed Income Economist Nikhil Mohan sees the growth mix remaining largely the same in 2024.
With inflation still front and center and tight labor markets, how will central banks react to the challenging market environment?