PBoC Warns: Inflation Stickiness May Delay Fed Rate Cut

The People's Bank of China (PBoC) has indicated that the stickiness of inflation may delay the Federal Reserve's (Fed) rate cut timing. The central bank expects the next rate cut to commence in the third quarter, later than the current market expectation of the fourth quarter.

CICC, a leading investment bank in China, released a research report highlighting the rebound in U.S. inflation. The core Consumer Price Index (CPI) rose to 0.4% on a seasonally adjusted monthly basis and 3.3% year-on-year in January. The total CPI increased to 0.5% on a monthly basis and 3.0% year-on-year, both exceeding market expectations.

CICC attributed the inflation rebound to various supply disruptions, including the lagged impact of hurricanes, severe winter weather, California wildfires, egg shortages due to avian flu, and escalating Trump tariff expectations. The report also noted the seasonal factors of the "January effect." While these supply disruptions are generally temporary, the uncertainty surrounding tariffs and the resilience of employment may cause the Fed to maintain a cautious stance for an extended period.

The PBoC's assessment of inflation stickiness and the delayed rate cut timing align with CICC's research findings. The central bank's expectation for a third-quarter rate cut reflects its concern about the persistence of inflationary pressures and the potential impact on economic growth.

The delayed rate cut timing may have implications for global financial markets, as investors adjust their expectations for monetary policy in the United States. The PBoC's assessment of inflation stickiness serves as a reminder that central banks must remain vigilant in monitoring inflationary pressures and adjusting monetary policy accordingly.