Inflation continued to show strength in March, as a key measure monitored by the Federal Reserve indicated persistent price pressures. The core personal consumption expenditures (PCE) price index, which excludes food and energy, rose by 2.8% from a year ago, matching the February figure and surpassing expectations.
Personal spending also exhibited resilience, increasing by 0.8% in March, outpacing the growth in personal income, which rose by 0.5%. This trend led to a decrease in the personal saving rate to 3.2%, reflecting a decline of 0.4 percentage points from February and 2 full percentage points from the previous year.
The latest data from the Commerce Department revealed that the overall PCE price index, including food and energy, climbed by 2.7% year-over-year, slightly above the 2.6% forecast. On a monthly basis, both measures saw a 0.3% increase, aligning with expectations and mirroring the uptick observed in February.
Despite the persistent inflationary pressures, financial markets displayed a muted response to the report, with Wall Street poised for a positive opening. Treasury yields experienced a decline, with the 10-year note settling at 4.67%, marking a 0.4 percentage point drop during the session. Futures traders adjusted their expectations for potential rate cuts, with the likelihood of two cuts this year rising to 44% according to the CME Group’s FedWatch gauge.
George Mateyo, Chief Investment Officer at Key Wealth, cautioned against premature assumptions regarding interest rate cuts, emphasizing that while the prospect remains, it is contingent on further developments, particularly in the labor market. Mateyo highlighted that consumer spending remained robust despite elevated prices, with personal spending exceeding estimates and personal income registering a steady increase.
The report’s findings, coupled with recent inflation data, are expected to influence the Federal Reserve’s monetary policy stance, potentially maintaining interest rates at current levels through the summer unless significant economic shifts occur.
