Fed will not cut interest rates in March, as the market expects, but only in May – Commerzbank

US December inflation data surprised slightly on the upside overall. Still, economists at Commerzbank are sticking to their forecast that the Fed will cut its key interest rates only in May and not – as the market has priced in – in March.

US inflation slightly above expectations

US consumer prices rose by 0.3% in December compared to November, both overall and excluding the volatile prices for energy and food. This was slightly more than expected but does little to change the gradual downward trend in inflation. 

What is important for the Federal Reserve is that the last mile in bringing inflation back to target appears to be more difficult. We, therefore, feel confirmed in our assessment that the Fed will not cut interest rates in March, as the market expects, but only in May.