The Federal Reserve's preferred inflation gauge ticked higher last month, data indicated Thursday, but largely matched Wall Street's forecasts, as price pressures continued to ease on an annual basis, suggesting the central bank will hold to its rate-cut forecasts for the coming year.
The Bureau of Economic Analysis' PCE Price Index showed core prices eased to 2.8% last month, matching Wall Street's forecast of 2.8% and slowing from the December reading of 2.9%. The latest reading was also the lowest since March 2021.
On a monthly basis, core pressures were up 0.4%, a modestly quicker pace compared with December's 0.2% gain but a figure that also matched Wall Street's consensus estimate.
January PCE deflator +2.4% year/year vs. +2.4% est. & +2.6% prior … core PCE +2.8% vs. +2.8% est. & +2.9% prior pic.twitter.com/QXo2Q8SAvb
— Liz Ann Sonders (@LizAnnSonders) February 29, 2024
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, eased to an annual rate of 2.4%, matching Wall Street's forecast and slowing from the 2.6% pace in December. Prices rose 0.3% on the month, the BEA said, following a 0.3% gain in December. The November tally of -0.1% was the first negative reading since April of 2020.
Liu Jie/Xinhua via Getty Images
The BEA also noted that personal incomes for the month of January rose 1%, reflecting the surprisingly resilient labor market, while spending slowed to 0.2% in the traditional post-holiday pullback.
"Moderate numbers from the Fed’s preferred inflation gauge may lower temperatures after “hot” CPI and PPI readings a couple of weeks ago. While rate cuts are still unlikely until the second half of the year," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley.
"Today’s data may ease some immediate doubts among stock bulls who had begun to wonder if the Fed would dig in its heels and keep rates higher for longer," he added.
U.S. stocks turned higher following the data release with the S&P 500 rising 23 points, or 0.46%, while the Dow Jones Industrial Average added 50 points and the tech-focused Nasdaq jumped 127 points.
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Benchmark 10-year Treasury note yields were 6 basis points lower at 4.254 % while 2-year notes were pegged 6 basis points lower at 4.641%.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.12% lower from yesterday's levels at 103.850
CME Group's FedWatch is expecting no change from the Federal Reserve on rates when its two-day policy meeting ends next month. It is split on whether the Fed starts cutting rates in June, with around a 452.7% chance of a quarter-point reduction at the Fed's fourth meeting of the year.
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