Fed inflation gauge eases in April, adding to faint…

Fed inflation gauge eases in April, adding to faint autumn rate cut hopes

The Federal Reserve's preferred measure of inflation eased modestly in April, suggesting some early progress in slowing consumer-price pressures into the summer months.

The Bureau of Economic Analysis's PCE Price Index showed core prices held at 2.8% last month, matching Wall Street's forecast and readings over the past two months, all of which were the slowest since March 2021.

On a monthly basis, core pressures were up 0.2%, a modestly slower pace compared with March's 0.3% gain. The latest tally also bested Wall Street's consensus estimate.

Markets often key on the bureau's core PCE price index, which the Fed considers a more accurate representation of consumer-price pressures since it blends changes in spending patterns.

The headline index, meanwhile, held at an annual rate of 2.7%, matching Wall Street's forecast. Prices rose 0.3% on the month, the BEA said, following a similar gain in March.

The BEA also noted that personal incomes for April rose 0.3%, down from the 0.5% pace in March, reflecting some softness in the labor market. Spending slowed to a 0.2% rise compared with the 0.3% gain in March.

"The data didn’t show much progress on inflation, but it didn’t show any backsliding, either," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley.

"Based on the initial reaction in stock index futures, the market will see it mostly as a positive," he added. "Investors will have to remain patient, though: the Fed has suggested it will take more than one month of favorable data to confirm inflation is reliably moving lower again, so there’s still no reason to think a first rate cut will come any earlier than September."

Fed Chairman Jerome Powell has told markets that it needs to see several months of improving inflation data to justify and autumn rate cut.
Win McNamee/Getty Images

Stocks up, bond yields and dollar ease after PCE

Stock moved firmly higher following the data release, with the S&P 500 swinging to an early gain of point 10 points, or 0.2% and the Dow Jones Industrial Average booking and early 75 point advance

Benchmark 10-year note yields eased 6 basis points to 4.499% following the release, while 2-year notes eased to 4.898%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.27% lower at 104.431.

Earlier this month, the Commerce Department's headline Consumer Price Index for April was pegged at 3.4%, down from the prior month's tally of 3.5%.

So-called core inflation, which strips out volatile components like food and energy, slowed to an annual rate of 3.6%, the lowest in more two years.

More Economic Analysis:

The CME Group's FedWatch tool suggests the market is expecting no change in rates from the Federal Reserve when its two-day May policy meeting ends on June 12, and again when the central bank sits in July.

Bets that the Fed starts cutting rates in September, however, are holding at around 48.8%, with markets still debating the odds of any rate cuts at all between now and the end of the year.

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