📝See One Last Rate Hike In May After CPI Report: Wells Fargo

The core CPI has been above 5% on a year-over-year basis for 16 consecutive months, and over the first three months of 2023, core consumer prices have risen at an equally hot 5.1% annualized rate. This is not to say there has been no progress towards taming inflation.

Directional progress should not be confused with mission accomplished. As a result, we expect another 25 bps rate hike from the FOMC at the conclusion of its next meeting on May 3.

There are forward-looking signs that suggest inflation will slow further in the coming months. Inventories of goods continue to normalize, and the ongoing contraction in the manufacturing sector suggests further softening in goods inflation could be in the offing. Shelter inflation as measured by the CPI has now started to rollover following the sharp deceleration in home prices and rents over the past year. Consequently, shelter's contribution to CPI inflation should retreat as the year progresses. More generally, aggregate demand growth appears to be weakening, and wage growth has moved in a similar direction. Altogether, we think the May 3 rate hike will be the last of the tightening cycle.

- Wells Fargo Securities