Washington, D.C. – The Federal Reserve’s core inflation measure surged in the first quarter, accompanied by a slowdown in U.S. GDP growth that was greater than anticipated, according to the Commerce Department’s report on Thursday. Following this data, S&P 500 futures experienced extended early losses, indicating a potential delay in Fed rate cuts.

The core PCE price index, the key inflation gauge for the Federal Reserve, saw a 3.7% annual increase in the fourth quarter, surpassing expectations of 3.4%. This rise followed two consecutive quarters of modest 2% inflation, aligning closely with the Fed’s target range. Additionally, the headline PCE price index, which includes food and energy prices, jumped to 3.4% in the first quarter from 1.8% in the last quarter.

The robust quarterly core PCE inflation figures offer a glimpse into the upcoming significant inflation report, shedding light on monthly core PCE price index increases. Market projections suggested a 0.3% rise in March, potentially pushing the annual core PCE inflation rate to 2.7%. However, the unexpected 3.7% quarterly surge implies a potentially higher reading for March and potential revisions to January and February data.

In terms of GDP growth, the U.S. economy expanded by 1.6% in the first quarter, falling short of the anticipated 2.3% growth and a significant drop from the 3.4% pace in the previous quarter. Personal consumption expenditures showed a solid 2.5% growth, slightly below the estimated 2.8%, with goods consumption remaining steady while spending on services increased by 4%.

Conversely, net exports of goods and services negatively impacted GDP by subtracting 0.86 percentage point due to an influx of imports. Moreover, the government’s contribution to GDP growth decelerated to two-tenths of a percentage point, down from a range of 0.5% to 1% over the past six quarters.

Following the release of Thursday’s data, market indicators suggested a decrease in the likelihood of a quarter-point Federal Reserve rate cut by the July 31 meeting, shifting from 44% to 39%. Furthermore, odds of a rate cut by Sept. 18 decreased from 70% to 63%. Amid these changes, the 10-year Treasury yield rose to 4.73%, the highest level since early November.

As the S&P 500 futures dipped after the release of GDP data, investors are closely monitoring market trends and the potential impact of economic indicators on trading decisions. Stay tuned for more updates and analysis as the situation evolves.