Topline
Inflation was hotter than economists anticipated last month and remains well above the Federal Reserve’s 2% target, according to government data released Friday morning, as the case for eagerly awaited interest rate cuts continues to lose steam.
Inflation is not coming down to the Fed's liking yet.
Key Facts
The core personal consumption expenditures index, which measures year-over-year changes in how much Americans actually spend on items excluding volatile energy and food prices and is the Federal Reserve’s favored inflation gauge, was 2.8% in March.
That is above consensus economist forecasts of 2.7%, but is flat from February’s 2.8%.
Headline PCE, which includes all spending, rose 0.3% from February to March, matching estimates of 0.3%, and rose on an annual basis to 2.7%, up from February’s 2.5% and coming in above projections of 2.6%.
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Key Background
The March inflation reading comes a day after the government’s preliminary gross domestic product reading for the first quarter revealed personal consumption expenditures rose 3.4% in the period, which implied a far hotter March inflation reading than economists previously estimated. The equity and bond markets negatively priced in that revelation, as the Dow Jones Industrial Average slipped 375 points and short-dated and long-dated U.S. government bond yields climbed to their highest levels of 2024, indicating growing belief the Federal Reserve will have to keep interest rates higher for longer to keep inflation on its downward trajectory. Higher rates typically slow the economy and drag down stock prices as they make the debt financing typically used to fund growth projects or major consumer expenditures more expensive.
Big Number
13%. That’s the market-implied probability of at least one Fed rate cut coming at either its May or June meetings, according to CME FedWatch Tool, which tracks futures contracts betting on the trajectory of monetary policy. The implied odds of a first-half cut was 11.6% just before Friday’s inflation release, but sat at 70% just one month ago and at 100% at the end of January.
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