What the latest US inflation data means for ASX 200 investors and interest rates

ASX 200 investors hoping for interest rate cuts in 2024 are keeping one eye on the US Fed.

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Woman holding an orange and looking at the expensive grocery receipt, symbolising inflation.

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The S&P/ASX 200 Index (ASX: XJO) just popped into potentially new all-time high closing territory.

Again.

After closing at a fresh record high of 7,896.9 points on Thursday, the ASX 200 is currently at 7,907.0 points. If it can hold onto these gains, the benchmark index will kick off April breaking yet another record close.

The rally comes despite a slight retrace in US markets yesterday, with the S&P 500 Index (SP: .INX) closing down 0.2%.

What's happening with interest rates in the US?

At the Federal Reserve's last meeting, the US benchmark interest rate was left unchanged in the range of 5.25% to 5.50%.

On Friday, when the ASX 200 was closed for the Easter holidays, Fed chair Jerome Powell watered down expectations of an imminent rate cut from the world's most influential central bank, saying Fed members are still waiting for more evidence that inflation is under control before pulling the rate cut trigger.

According to Powell:

The fact that the US economy is growing at such a solid pace, the fact that the labour market is still very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates.

However, he placated investors by adding that it's still likely the Fed will begin to cut rates "at some point this year".

Veronica Clark, an economist at Citigroup, is still confident that the Fed will begin easing in 2024, which should offer some tailwinds to US stocks and the ASX 200.

According to Clark (quoted by The Australian Financial Review):

The overall message really hasn't changed too much. It seems like February inflation data came in line with how they were expecting, and that's in line with more prints that they would be OK with.

We're in the mode now of just gaining a bit more confidence, a couple more months of data, and they're still going to be willing to cut mid-year.

ASX 200 investors also eyeing the RBA

As for the Reserve Bank of Australia (RBA), the March minutes showed that the central bank did not discuss raising interest rates, something they had considered in prior meetings.

Still, National Australia Bank Ltd (ASX: NAB) senior economist Rodrigo Catril believes ASX 200 investors may be waiting until 2025 to see the first RBA rate cuts.

"We still have an inflationary problem," Catril said (quoted by the AFR). "We believe the RBA will be on course to cut in November, but the resilience of the labour market may prove to be a challenge."

Catril added, "We need to see a weakening of the labour market for the Reserve Bank to consider a rate cut and at the moment, it remains unclear whether that will happen as soon as November."

Stay tuned!

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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