Mid-year interest rate cuts may be put on hold after the Federal Reserve's recommended inflation measure was not as high as expected in February.
The so-called “core” personal consumption expenditure index, which excludes volatile food and energy prices, rose 2.8% in February from a year earlier.
This was in line with economist expectations and down from 2.9% in January. Core prices rose 0.3% from January to February, also in line with expectations and down from 0.5% the previous month.
The new PCE numbers could be a reassuring development for some Fed officials, who have questioned the persistence of inflation in recent months after higher-than-expected readings in early 2024. be.
“Core services inflation has slowed and will likely continue through the rest of the year,” Jeffrey Roach, chief economist at LPL Financial, said in a note.
“By the June Fed meeting, we should have enough convincing data for the Fed to begin the rate normalization process. However, as things stand today, the market is You need to have the same patience.”
Some Fed officials have warned investors to be patient about the pace of rate cuts.
For example, Fed Director Chris Waller said Wednesday that he is in no hurry to cut rates and is looking to see better indicators for at least a few months to have enough confidence that easing monetary policy will keep inflation at a level. said it was necessary. The Fed's target is 2%.
“There is no need to rush to lower policy rates,'' Waller said in a speech in New York.
Investors now expect the first rate cut to occur in June, after scaling back expectations for early 2024 that the first rate cut would occur in March. As of Thursday, traders were pegging the probability of a June rate cut at nearly 64%.
Waller is not alone in promoting cations. Atlanta Fed President Rafael Bostic also said last week that he currently expects only one rate cut this year, and believes it will occur later this year than previously expected.
But other Fed officials, including Fed Chairman Jay Powell, are more optimistic. He and Chicago Fed President Austan Goolsby said last week that despite the higher-than-expected numbers in January and February, the basic story about lower inflation remains the same.
Mr. Powell is scheduled to speak again later today.
Last Wednesday, the Federal Reserve decided to keep interest rates on hold and maintain the outlook for three rate cuts this year. Officials also raised their expectations for inflation and economic growth.
The decision to maintain a policy of three interest rate cuts this year (the same number as expected in December) was made as it was believed that persistent inflation data would prompt authorities to reduce the number of rate cuts in 2024. I was disappointed.
Concerns about this troubling data came from other indicators, such as the Consumer Price Index.
Core consumer prices based on the CPI rose at an annual rate of 3.8% in February, following a 3.9% rise in January.
These numbers are down from last year's levels of around 5.5%, but still nearly double the Fed's 2% inflation target.
But Friday's PCE readings were close to where the Fed is aiming. Non-core prices rose 0.3% in January-February, slowing from a 0.4% rise in the previous month.
Compared to 12 months ago, non-core prices rose 2.5% in February, up slightly from January's 2.4% year-on-year rise, but in line with expectations.
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