Interest rate cut now unlikely before June after Fed’s preferred measure of inflation shows war on price increases is not over
- January core PCE numbers rose at the fastest pace since the same time last year
- A spike in inflation was expected; it seems unlikely that interest rates will be cut before June
By the Fed’s preferred measure, inflation rose by the largest amount in nearly a year. This confirms the expectation that interest rates will not be lowered until around June.
The so-called core personal consumption expenditure (PCE) index β which excludes volatile food and energy prices β rose 0.4 percent between December and January.
That is the largest monthly increase since January 2023, although it did decline year-on-year.
Annual inflation was 2.8 percent in January, according to figures released Thursday by the Bureau of Economic Analysis.
That is a slight decrease from the annual inflation rate of 2.9 percent in December, when prices rose 0.1 percent compared to November.
The core personal consumption expenditure (PCE) index rose 0.4 percent between December and January
Current Federal Reserve interest rates are between 5.25 and 5.5 percent and have been at that high level since last summer. Cuts are not expected until June
Markets seemed to have expected the spike and were relieved that prices had not risen faster.
Futures on the S&P 500 and Nasdaq were fairly flat on the news, up 0.1 percent and down 0.1 percent, respectively.
Current Federal Reserve interest rates are between 5.25 and 5.5 percent and have been at that high level since last summer.
Key PCE figures, which include more volatile food and energy, were 2.4 percent, matching the expectations of economists polled by Bloomberg.
That is a decrease from the 2.6 percent year on year in December.
Alternative inflation data from the Bureau of Labor Statistics β the Consumer Price Index β also indicated that inflation is starting to accelerate again.
In the twelve months to January they rose by 3.1 percent.
Federal Reserve officials have signaled they are hesitant to start lowering key interest rates now as the battle against inflation continues.
βThe latest PCE report β the Fed’s preferred inflation gauge β was in line with expectations and reflects the Fed’s previous stance of remaining on pause,β said Bret Kenwell, analyst at eToro.
‘At one point the bond market was pricing in the first interest rate cut in March. Currently, that consensus has been pushed back to June and this report is unlikely to change that outlook much.β