Rising US Inflation Dashes Rate Cut Hopes for June, Potential Impact on India Stock Market Rally

Rising US Inflation Dashes Rate Cut Hopes for June: Fed interest rate cuts are now unlikely, experts say, due to higher-than-expected US retail inflation in March, sending equity markets into a tailspin and bond yields soaring.

In March, the US consumer price index (CPI) rose 0.4% month-on-month, maintaining the same pace as in February. Both month-on-month and year-on-year CPI inflation was higher than Reuters poll estimates. March CPI inflation was 3.5 percent, up from 3.2 percent in February.

In intraday, trading earlier, the NSE Nifty 50 had reached a record high in intraday trading, and the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all fell by at least 1 percent. Gift Nifty on IFSC fell 0.6 percent, or 130 points to 22,629 at 8.40 pm IST.

Core inflation also remained hot, coming in at 0.4 percent month-on-month and 3.8 percent yearly.

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According to Emkay Global Financial Services, the Federal Reserve will not cut rates this year due to hotter inflation and a slowing yet stable economy despite the third consecutive "hot" CPI print.

Experts predict a short-term correction on the Indian markets as a result of the impact.

There is exuberance across the equity markets and commodities. They are all over-stretched and need a trigger to start correcting. The gold and silver prices, which have jumped by almost 20 percent in the past 6-7 weeks, must also be correct. This hotter-than-expected inflation data would also cause a trigger for US and Indian markets to correct. As a result of the data point, the US Fed may keep interest rates unchanged for longer,” Amit Goel, Pace 360's chief global strategist, said.

Inflation may have reduced the probability of a June cut, with the probability lower than 20%. July's rate cut probability is lower than even, with the first cut expected in September.

In light of today's print, the market now expects two rate cuts by the end of the year rather than three, and other experts believe the cut will be pushed beyond June.

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