All eyes are on the Federal Reserve, the United States central bank, to determine which way interest rates will move. After the latest US inflation data for March became public, the voice of a first-rate cut in June faded. While the probability of rate cuts in 2024 was reduced from six to three before March CPI data was released, some now believe that only one cut will be made this year.

“The Federal Reserve will only cut interest rates once this year, and the next cut will not be until at least January 2025,” says CEO, Nigel Green of deVere. “We expect the Fed will delay a rate cut until the third quarter of this year. Then, we believe there will be a pause to assess the impact on the world’s largest economy of the cut,” adds Green.

Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance also shares almost similar view – “We believe the Fed still has a bias to cut rates and they are likely to still cut interest rates by 25 bps in either July or September, but if the inflation data remains sticky then that may be the only rate cut we get this year.”

Is a rate hike on the horizon? According to Bloomberg Former Treasury Secretary Lawrence Summers said that the hot US consumer price inflation report for March means that the risk case of the next Federal Reserve move to be an increase must be taken seriously. “I see no case for a cut in June but facts can change,” Former US Treasury Secretary Lawrence H. Summers says during an interview with David Westin on “Wall Street Week.”

The CPI rose 0.4% in March, above the consensus forecast of 0.3% and following 0.4% in February. From a year earlier, the CPI picked up to a 3.5% increase from 3.2% in February. The core CPI excluding food and energy rose 0.4% in March, also above the 0.3% consensus and repeating February’s 0.4% increase. From a year earlier, core CPI was unchanged at 3.8%.

Inflation has largely moved sideways since the turn of the year. “The Fed has reiterated on multiple occasions that the committee is in no hurry to cuts rates till concrete disinflation signs are visible,” says Vaibhav Shah, Fund Manager, Torus ORO PMS

The higher-for-longer scenario continues to play out. Jamie Cox, Managing Partner for Harris Financial Group says, ” Over half of the increase in CPI is gas and rents, which is keeping inflation north of 3%. Rates aren’t going higher, but the distance to a rate cut is another quarter.”

The Fed’s actions are heavily influenced by the PCE index rather than the CPI statistics alone. “The CPI report shows inflation running over 3%, although inflation is closer to the Fed’s 2% target by the Fed’s preferred measure, the personal consumption expenditures price index. Where the CPI attempts to the cost of consumers’ direct expenditures, the PCE index includes spending on behalf of American households by third parties, including private insurers, Medicare and Medicaid. That difference has caused the PCE index to run considerably slower than the CPI recently. PCE inflation was 0.3% in February and 2.5% from a year earlier, and core PCE inflation was 0.3% on the month and 2.8% from a year earlier,” says Bill Adams, Chief Economist for Comerica Bank.

Markets are turning more volatile as March’s high CPI puts a wrench in investor hopes for rate cuts. At higher rates, justifying the high valuations that many stocks enjoy loses ground. Stocks, particularly the most rate-sensitive ones, are being hammered the hardest.

Equity indices are becoming more dependent on the forthcoming earnings season, as companies must deliver to justify higher prices. Any profit disappointment is expected to result in a near-term correction in the 5-6% region for the S&P 500 Index.