The Fed's recommended inflation measure recorded its slowest annual rise in January since March 2021, matching Wall Street expectations, while monthly prices rose at the fastest pace in a year.
The core personal consumption expenditures (PCE) index, which excludes food and energy costs, is closely monitored by the Federal Reserve and rose 2.8% year over year in January, the lowest since a 2.2% rise in March 2021. The annual increase rate was recorded. .
Compared to the previous month, core PCE rose 0.4%, the largest increase since January 2023, and an increase from December's 0.1% rise. This monthly increase marked a significant change in inflation data.
Before Thursday's announcement, the six-month annualized rate of inflation had been below the Fed's 2% target for two straight months. After January's data, the annual rate of increase in his PCE price for six months is he 2.5%.
“Fed officials have indicated they don't need more good news on inflation to cut interest rates, just a continuation of the good news,” Michael Pearce, deputy chief U.S. economist at Oxford Economics, said in a note to clients. ” he said. “With inflation still on a downward trend, gradual interest rate cuts this year remain on the table.”
Headline PCE, which includes all categories, recorded a 2.4% year-over-year increase, slowing from last month's 2.6%.
The print publication comes at a critical time in the inflation story after another survey on price rises, the Consumer Price Index (CPI), recently showed that prices rose faster than expected in January. . Stocks fell after the report beat expectations, prompting investors to change their expectations for a rate cut.
read more: Inflation update on daily expenses: prescription drugs down, pet care up significantly
Markets are now pricing in three rate cuts in 2024, consistent with the Fed's latest forecast and up from the previous consensus of six rate cuts seen in December, according to Bloomberg data. has been revised downward. Before Thursday's report, investors had given a 58% chance that the Fed would cut interest rates for the first time in June.
Paul Ashworth, chief North American economist at Capital Economics, said in a note to clients on Thursday that the monthly PCE rise was “nearly It was expected.”
“This sharp rise makes it impossible for the Fed to cut rates early, especially in an environment where first-quarter gross domestic product (GDP) growth is likely to be between 2.5% and 3.0%,” Ashworth said. “But I don't think that changes the overall picture.” “There will still be sufficient disinflation this year, meaning that the annual rate of core PCE inflation will move closer to the 2% target by mid-year.”
The latest minutes from the Federal Reserve's January meeting showed that most officials were concerned about the risk of “acting too quickly” in cutting interest rates. Mainly, officials have expressed in recent commentary that they want “more confidence” in the downward trajectory of inflation.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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