The Fed is on track for another two more of its forward guided three interest rate hikes this year. This is the message from the just-released US CPI report for April.
Despite the continued improvement in the US unemployment rate - down to 3.9% in April - and the continuing ascent in crude oil prices, headline CPI inflation only managed a small increase to 2.5% in the year to April from 2.4% in the previous month. The less volatile core inflation measure hardly budged at 2.1% in April - the same as March but lower than market expectations for an increase to 2.2%.
Wall Street loved it. The S&P 500 index climbed by 0.9% and the yield on 10-year US Treasuries fell by four basis points to 2.97%.
This isn't surprising. That's the Fed's guidance looking very likely to be kept. What's surprising is the market's reaction to a promise, a guidance, that didn't materialise.
It's the Bank of England (BOE), I speak of. A few months before last night, the British central bank signalled that another small increase in interest rates is nigh, sparking speculations that the BOE would top up its 25 bps hike in November 2017 that took the Bank rate up to 0.5% with another 25 bps increase when it meets again on May 10.
The Bank's Monetary Policy Committee (MPC) met as scheduled, but decided to keep monetary policy settings unchanged.
The FTSE-100 index closed 0.5% higher on the day and turning its year-to-date losses into a 0.2% gain - the first since late January this year.
The UK equity market's positive reaction is even more surprising given the BOE's rationale for maintaining current policy settings - the sharp slowdown in first quarter GDP growth.
UK GDP expanded by 1.2% in the year to the first quarter of 2018 from 1.4% in the previous quarter. This is less than market expectations for growth of 1.4%, the fourth straight quarter of decelerating year-on-year growth since the March quarter of last year and the slowest rate of growth since the June 2012 quarter.
Then again, in his post-meeting press conference, BOE Governor Mark Carney stressed that the slowdown is due to adverse weather in February and March and that UK's underlying growth is much more resilient, citing the strong labour market and that while Brexit uncertainty continues as a drag on growth, it is not intensifying. This has allowed the British central bank to largely maintain its GDP growth forecast of around 1.75%.
But above-target inflation, rather than slowing growth is the BOE's more pressing problem. The slowing trend in growth in consumer prices has made it less pressing. Headline CPI declined to 2.5% in the year to March - the slowest since March 2017 - from 2.7% in the previous month. Similarly, the core inflation rate slowed to a one-year low of 2.3% from 2.4% in February.
While the BOE predicts more tightening in the future, the scope and magnitude would be less if the slowing trend in inflation continues.
Ben Ong is the Director of Economics and Investments at Rainmaker Group. He previously worked as a fund manager, economist, asset allocation strategist, portfolio analyst and stock market analyst. Check out his economics analysis here.