Larry Summers Says June Rate Cut Could Be 'Dangerous And Egregious Error' After Hotter-than-Expected March Inflation Data
Portfolio Pulse from Shanthi Rexaline
Former Treasury Secretary Larry Summers warned that a rate cut in June could be a 'dangerous and egregious error' following hotter-than-expected March inflation data. Consumer prices rose more than anticipated, with core and super core inflation rates also exceeding forecasts. Summers highlighted the risk of ignoring inflation pressures, especially with the economy growing faster than potential and short-term Treasury rates exceeding longer-term rates. This suggests the neutral rate is above the 2.6% level used by the Fed. The futures market has since adjusted, showing an 83% probability of the Federal Reserve maintaining the current rate. The iShares TIPS Bond ETF (TIP) fell 0.96% to $105.84.
April 11, 2024 | 7:39 am
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NEGATIVE IMPACT
The iShares TIPS Bond ETF (TIP) experienced a 0.96% drop to $105.84 following the release of hotter-than-expected March inflation data and comments by Larry Summers on the potential error of a June rate cut by the Fed.
The drop in TIP's price can be directly attributed to the hotter-than-expected inflation data and the subsequent market reaction to Larry Summers' comments. As TIP tracks inflation-protected U.S. Treasury bonds, its performance is closely tied to inflation expectations and Fed policy decisions. Summers' warning against a rate cut likely contributed to the adjustment in rate cut expectations, influencing TIP's performance negatively.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90