Inflation Gauge Shows 2.5% Rise in February

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The Federal Reserve won’t be rushing to cut interest rates after digesting Friday’s stubbornly high inflation report.

The Personal Consumption Expenditure (PCE) price index, the Fed’s preferred inflation gauge, rose 0.3% in February and 2.5% year-over-year, according to the latest report from the U.S. Department of Commerce’s Bureau of Economic Analysis.

Core PCE, which excludes volatile food and energy prices, edged up 0.3% during the month and 2.8% over the last year. February’s reading ultimately came in below consensus estimates of 0.4% but aligned with Fed expectations for the period.

Although core PCE inflation slowed to a three-year low in February, it remains well above the U.S. Central Bank’s 2% target.

“Inflation has moderated somewhat since the middle of last year, but the strength of these recent readings indicates that inflation pressures continue to run high,” said Fed Chair Jerome Powell during a March 22, 2023 press conference.

“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” he added.

While the Consumer Price Index has slowed from an annualized 9.1% in June 2022, the Fed has struggled on the final leg of its goal. Monetary policymakers began their current tightening cycle back in March 2022. Since then, the Central Bank has raised its target rate 11 times, finally pausing additional rate hikes in July 2023, reported The Dallas Express.

Despite holding rates steady for nearly a year, Central Bankers remain cautious about cutting rates too soon. Following the March 29 report, the probability that interest rates will remain unchanged at the policy meeting on May 1 stands at 95.8%, up from 81.4% a month earlier, according to the CME FedWatch Tool, which tracks Fed Futures.

Current rate cut odds suggest Wall Street is losing confidence that the Fed will lower rates by mid-year. However, the probability of a rate cut at the June 12 policy meeting remains over 50% despite a sharp drop from the prior week.

“Nothing really super surprising,” said Victoria Greene, chief investment officer at G Squared Private Wealth, per CNBC. “Obviously not the numbers the Fed wants to see, but I don’t think this is going to catch anybody off guard when they come back to work on Monday.”

“I think everybody is going to pivot to labor pretty quickly and say well maybe if we see some weakness and cracks over here, this little stickiness in inflation and PCE isn’t going to matter as much,” she added.

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