January Sees 0.6% Surge in U.S. PCE Prices Fueling Concerns over Extended Fed Rate Hike

The measure of inflation that the Federal Reserve favors showed a concerning increase on Friday, indicating that interest rates may need to be raised to control prices. In January, the personal consumer expenditures price index increased by 0.6%, both in core and headline terms. The core index, which the Fed pays the most attention to, had been expected to rise only 0.4%, so the increase was larger than anticipated. This caused the core rate of PCE inflation to rise for the first time in four months, reaching 4.7%, which is more than double the Fed's target of 2%. As a result, financial markets reacted negatively, quickly adjusting their expectations for official interest rates. The dollar index rose 0.5% to 105.04, a seven-week high, and US 10-Year Treasury Yields moved toward 3.94%.