Fed's preferred inflation gauge rose 2.8% in February

MONEY & BUSINESS: Fed’s preferred inflation gauge rose 2.8% in February

A key measure of inflation showed prices remained stubbornly high in February – dampening hopes that the Federal Reserve could start cutting interest rates in June.

The core Personal Consumption Expenditures Price Index — the Fed’s preferred gauge of inflation — rose 0.3% in February and 2.8% year-over-year, according to the latest federal data released Friday.

The PCE index excludes volatile food and energy prices. When food and energy costs are factored in, headline PCE clocked in at 0.3% for February and 2.5% year-over-year — compared to estimates for 0.4% and 2.5%.

The Federal Reserve is likely to keep interest rate levels the same given the latest inflation figures. AP

Friday’s PCE print was in line with analyst expectations — making it more likely that the central bank will keep interest rates at their current levels rather than rush cuts that are eagerly anticipated by Wall Street investors.

The inflation data is “along the lines of what we would like to see,” Federal Reserve Chair Jerome Powell said after the release, in comments that appeared to keep the central bank’s baseline for interest rate cuts this year intact.

The PCE index “is what we were expecting,” Powell said, and even though the numbers showed less of a slowdown than last year, “you won’t see us overreacting.”

Though price pressures are subsiding, the pace has slowed from the first half of last year, and inflation remains above the central bank’s 2% target.

The report from the Commerce Department also showed consumer spending rising by the most in just over a year last month, underscoring the economy’s resilience.

The Fed chief will have another opportunity next week to hone his message on the monetary policy outlook, with a second public appearance in the San Francisco Bay Area on Wednesday at Stanford University, where he will deliver prepared remarks.

The core personal consumption expenditure price index — the Federal Reserve’s preferred gauge of inflation — rose 0.3% in February and 2.8% year-over-year. AP

“While we anticipate a more carefully worded message with respect to the near-term outlook,” economists at Deutsche Bank wrote about the coming event, “we don’t expect a material deviation from the messaging coming out of the March 20 FOMC (Federal Open Market Committee) meeting, namely that the Fed is data-dependent and requires further evidence that inflation is on a path to 2%.”

Last week, the Federal Reserve kept decades-high interest rates unchanged  — at between 5.25% and 5.50% — following its meeting, though it made clear that it anticipates making three cuts this year.

Investors have been betting that the first of three 25-point basis cuts will begin in June.
The stock market was closed on Friday in observance of Good Friday.

Speaking after the two-day policy meeting, Powell said the timing of the much-anticipated reductions still depended on officials becoming more secure that inflation can continue to decline towards the 2% target in an economy that continues to outperform expectations.

Federal Reserve Chair Jerome Powell speaks with Marketplace host Kai Ryssdal on Friday REUTERS

The main inflation gauge — the consumer price index — rose 3.2% in February — yet another high figure that won’t inspire the Fed to slash interest rates in the short term.

Powell had said recent high inflation readings had not changed the underlying “story” of slowly easing price pressures, but added that recent data also had not bolstered the central bank’s confidence that the inflation battle has been won.

Efforts by the Fed to tame inflation and steer a “soft landing” — bringing interest rates down without tilting the economy into a recession — have been complicated by the fact that unemployment is low while the US economy continues to hum along.

“As long as employment growth remains strong, it can underpin solid spending, however, consumers overall are not prepared for a weakening in the labor market should it unfold,” said Kathy Bostjancic, chief economist at Nationwide.

The PCE index excludes volatile food and energy prices. The main inflation gauge — the consumer price index — rose 3.2% in February. AP

The US economy grew at a solid 3.4% annual pace from October through December, the government said Thursday in an upgrade from its previous estimate.

The government had previously estimated that the economy expanded at a 3.2% rate last quarter.
The Commerce Department’s revised measure of the nation’s gross domestic product — the total output of goods and services — confirmed that the economy decelerated from its sizzling 4.9% rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports, and business investment in buildings and software.
It marked the sixth straight quarter in which the economy has grown at an annual rate above 2%.

For all of 2023, the US economy — the world’s biggest — grew 2.5%, up from 1.9% in 2022.
In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1% annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

With Post wires

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