US inflation was 2.3% in April compared to the same period in 2024 and 2.4% in March. The decline in energy prices (-3.7% year-on-year) is mainly responsible. The underlying index, excluding energy and food, remains unchanged at +2.8%.
At 2.3%, the main index's rate of increase fell to its lowest level since February 2021, giving investors renewed hope. They continue to expect two to three cuts to US key interest rates.
Inflation powered by tariffs is a risk
Indeed, suppose the Fed refrains from further reducing the cost of credit in an uncertain environment. In that case, it fears inflation - which remains above its 2.0% target - will soar again once the various tariffs the White House seeks to impose are in effect.
This decline has excited the markets and led to a decrease in US bond yields. After surpassing 4.5% during the week, the 10-year yield has softened, returning to around 4.4%. The same trend for the 2-year yield has been observed, falling below 4.0%.
The Fed is patient and cautious
But this optimism has been tempered by the cautious rhetoric of the US Federal Reserve. Its enthusiasm for further rate cuts remains limited. Its Chairman, Jerome Powell, insists that, at this stage, there is no rush, and the Fed can afford to observe the indicators before acting.
He also mentions that supply chains will now be more sensitive to potential shocks that will cause increased turbulence on the inflation front. This refers to President Trump's disruption of international trade, which forces the entire chain to adapt, which can trigger moments of stress.
The US are still attractive
Bond markets are following suit and are hesitant to offer the United States cheaper financing. The persistently high yields benefit the US dollar, which has appreciated against the euro.
The US approach contrasts with a European Central Bank that will continue to cut key rates. This will widen the interest rate differential between the United States and Europe, making investing in US bonds, whether issued by the government, corporations, or even high-yield, increasingly attractive.
We continue to invest in the United States, both in equities and bonds.
US INFLATION AND LONG-TERM RATES IN THE UNITED STATES
(Annual change in % for inflation, long-term rates in %)