US Inflation Continues at Predicted Pace According to PCE Data

• Core PCE Inflation Consistent with Projections: An annual increase of 2.8% in the core PCE price index confirms economists' expectations.
• Federal Reserve Strategy Unchanged: Considering the inflation report, the Fed maintains a cautious outlook, with no immediate rate adjustments anticipated.

Core PCE Price Index Up 2.8% YoY in February, Matching Forecasts

On Friday, March 29, 2024, the US Bureau of Economic Analysis released the Personal Consumption Expenditures (PCE) data, a significant indicator of inflation that the Federal Reserve closely monitors. According to reports from sources like Reuters, Bloomberg, and CNBC, the core PCE price index, which excludes the more volatile food and energy costs, showed a 2.8% increase on an annual basis for February, matching economists' projections and remaining above the Fed's 2% target for the past three years. The monthly increase remained steady at 0.3%, consistent with expectations.

Consumer Spending Surges 0.8% in Feb, Exceeding Predictions

Consumer spending, which accounts for a substantial part of economic activity, saw an unexpected surge of 0.8% in February, higher than the 0.5% economists had predicted, pointing to a strong consumer demand. In contrast, personal income growth fell short of expectations, registering a modest increase of 0.3%. The spending increase was particularly notable in goods, with a rise of 0.5% as opposed to services, which saw a 0.3% increase. Also of note, energy costs had a significant impact on the headline inflation numbers, climbing by 2.3%, while food prices saw a marginal uptick of 0.1%.

Fed Cautious Despite Steady Inflation, Eyes June Rate Cut

The Federal Reserve's response to the PCE data has been one of caution. Statements from Federal Reserve Governor Michelle Bowman emphasized the ongoing upside risks to inflation, which could potentially disrupt or reignite inflationary pressures. The central bank had recently held its benchmark short-term borrowing rate steady and indicated that it still needs to see more evidence of a downtrend in inflation before considering any rate cuts. While market expectations suggest that the Fed is likely to keep rates steady at its May 1 decision, there's speculation that it might start to cut rates at the June 11-12 meeting.

PCE Data Meets Forecasts, Jobless Claims Steady at 215,000

The release of the PCE data was accompanied by other economic indicators. Initial jobless claims for the week ended February 24 came in at 215,000, slightly above expectations but still in line with the recent trend, indicating a stable labor market. Earlier, the consumer price index (CPI) for January had raised some concerns over persistent inflation, though some of this was attributed to seasonal factors.

Despite the significance of the PCE data, the reaction from Wall Street was relatively subdued. Stock market futures saw only a slight increase following the announcement, while Treasury yields experienced a small dip. This reaction suggests that the PCE figures aligned with investor forecasts and did not trigger substantial market volatility.