Washington, DC – The latest data on US inflation reveals that it remained steady at 2.7 percent in the year leading up to April, as indicated by the metric used by the Federal Reserve to determine its target for price pressures. Economists had anticipated this stability, with the personal consumption expenditures index aligning with expectations for inflation to stay at the same level as in March. The Fed aims for the headline PCE index to hit 2 percent, and the core PCE, which excludes food and fuel price changes, came in at 2.8 percent, in line with forecasts.
Looking ahead, the Federal Reserve officials are set to vote on rates come June 12. It is expected that they will hold off on reducing borrowing costs, currently at a 23-year high of 5.25 to 5.5 percent, until further inflation data is available. However, investors remain optimistic that a rate cut may occur before the US presidential elections in November, presenting a potential advantage for current President Joe Biden. Market predictions suggest a quarter-point cut within the year, with September being the favored timing for the first cut, which precedes the election’s final policy decision.
The data also shed light on consumer behavior, indicating a slowdown in spending, with real consumption expenditures seeing a decrease of 0.1 percent. Analysts suggest that this deceleration may be attributed to rising interest rates, a leveling labor market, and increasing prices. While the Fed might find some relief in these numbers, it is unlikely to be fully satisfied. Dean Maki, chief economist at Point72, notes the unpredictability of Fed policy decisions, which are heavily influenced by the fluctuating core inflation prints.
Following the release of April’s PCE data, US stocks showed an initial rise before experiencing a slight decline. The dip saw the S&P 500 down by 0.3 percent and the Nasdaq Composite down by 0.8 percent, with both indices heading towards their first weekly drop since mid-April. In the bond market, two-year Treasury yields decreased by 0.05 percentage points to 4.88 percent, while the benchmark 10-year yield fell by 0.06 percentage points to 4.49 percent, reflecting an increase in prices.
As concerns over inflation and consumer spending continue to impact the market, the Federal Reserve remains cautious in its approach to monetary policy, highlighting the importance of closely monitoring economic indicators to gauge future rate adjustments.