The Federal Reserve’s preferred inflation gauge surged at a higher-than-expected pace, highlighting the persistent struggle to return inflation to the central bank’s 2 percent target.
According to the Bureau of Economic Analysis (BEA), the personal consumption expenditure (PCE) price index rose to 2.7 percent in March, up from 2.5 percent in February. This also came in higher than the consensus estimate of 2.6 percent.
PCE rose 0.3 percent monthly, unchanged from the previous month and in line with market expectations.
Core PCE, which strips the volatile energy and food sectors, was unchanged at 2.8 percent year-over-year. This topped economists’ expectations of 2.6 percent. On a month-over-month basis, core PCE rose 0.3 percent.
Looking ahead to the next inflation reading, the consumer price index (CPI) is expected to remain unchanged at 3.5 percent, according to the Federal Reserve Bank of Cleveland’s Inflation Nowcasting model. The CPI is projected to rise 0.4 percent monthly.
Growth Slowing, Inflation Rising
The first-quarter GDP report spotlighted an economy experiencing slower growth and rising inflation.
In the January to March period, the economy rose 1.6 percent, down from 3.4 percent in the fourth quarter. But while the worse-than-expected print raised eyebrows, the inflation metrics contributed to the bedlam observed in the U.S. stock market during the April 25 trading session.
The GDP Price Index, a gauge of prices businesses, consumers, and governments paid for goods and services, surged to a higher-than-expected 3.1 percent in the first three months of 2024. This was up from 1.7 percent in the fourth quarter.
Personal consumption expenditure (PCE) prices climbed to 3.4 percent, up from 1.8 percent. Core PCE, which omits food and energy components, surged to 3.7 percent in the last quarter. This was up from 2 percent and topped the consensus estimate of 3.4 percent.
This comes after the economy witnessed four consecutive hotter-than-expected CPI reports.
Although investors have refrained from pricing in a rate hike this year, the futures market has trimmed its expectations for the Federal Reserve pulling the trigger on its first rate cut.
According to the CME Fed Watch Tool, traders only anticipate one quarter-point rate cut happening in December.
Heading into the latest reading of the Fed’s preferred metric, many monetary policymakers have conceded the progress on inflation had stalled and that there was little urgency to cut the benchmark federal funds rate.
With stagflation talk heating up—a blend of stagnating growth and high inflation—the White House says it is confident inflation is “on a downward path.”
Speaking in an interview with Reuters, Treasury Secretary Janet Yellen said the higher inflation readings are misleading, noting that housing is “the single most important contributor to inflation. That said, moderating inflation will allow the central bank to reduce rates.
“I believe the fundamentals here are in line with inflation continuing down back toward normal levels,” Ms. Yellen said.
“I know that Americans are concerned with the high cost of living in a number of different areas,” she added,” and it’s President Biden’s top priority to address that concern.”
The next two-day policymaking Federal Open Market Committee meeting will take place on April 30 and May 1.
From The Epoch Times
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