Key Fed Inflation Data Keeps June Rate Cut In Play

The primary Federal Reserve inflation rate, the core PCE price index, came in only hot as chair Jerome Powell signaled it would. That should keep a June rate cut on the table, though the S&P 500 and government bond market reaction will be delayed with financial markets closed on Good Friday.

decisions on interest rates impact both the economy and the stock market. IBD News Editor Ed Carson shares how reactions by each can differ and what investors need to know.” vid-name=”Fed Interest Rate Decisions: Market Influence And Investor Psychology Impact Of Cuts And Hikes” vid-cat=”Industry Insights” vid-date=”03/20/2024″ vid-date-tmsp=”1710938202″ vid-image=”×360.jpg” vid-authors=”MEREDITH HEYMAN”>

However, Fed chair Powell may give his reaction in a few hours. He’s participating in a panel discussion at the San Francisco Fed at 11:30 a.m. ET.

Primary Fed Inflation Rate

The personal consumption expenditures, or PCE, price index rose 0.3% in February, below 0.4% forecasts. The 12-month headline inflation rate picked up to 2.5%, as expected.

Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. The core PCE price index rose 0.3% in February, matching forecasts. The core 12-month inflation rate held at 2.8%, as expected.

The data looked better if not rounded to tenths of a percentage point. The core PCE price index rose 0.26% in February. January’s increase was revised up slightly to 0.45% from 0.42%. The changes put the 12-month inflation rate at 2.78%.

Fed chair Powell’s prediction at at his March 20 news conference proved on the mark. He said that the Fed expected the monthly increase in the core PCE price index to be “well below 30 basis points,” keeping the 12-month inflation rate at 2.8%.

Still, the core PCE inflation rate rose to 2.9% on a six-month annualized basis, up from 2.6% in January and 1.9% in December. The Fed will want to see tamer inflation data in coming months before cutting rates.

Personal Income, Spending

The PCE price index is released with the Commerce Department’s monthly personal income and outlays report. Personal income rose 0.3%, trailing 0.4% forecasts. Personal consumption expenditures rose 0.8% in February vs. 0.5% forecasts. That followed a weak 0.2% rise in January.

Federal Reserve Rate Cut Odds

Ahead of the February PCE report, market pricing showed 64% odds that the first rate cut will come by the June 12 meeting.

Markets are now pricing in a year-end 2024 Fed funds rate of 4.62% vs. the current range of 5.25% to 5.5%. That builds in 70% odds of three quarter-point rate cuts.

S&P 500

The S&P 500 tacked on 0.1% in Thursday stock market action, inching to a new record closing high. That closed out the first quarter with a 10.2% gain, the biggest since the second quarter of 2020.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.


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