According to a report by the Commerce Department on Friday, an inflation gauge that the Federal Reserve closely follows rose slightly less than anticipated in February. The personal consumption expenditures (PCE) price index, which excludes food and energy, increased 0.3% for the month, lower than the 0.4% Dow Jones estimate and the 0.5% increase in January.
The report also revealed that the core PCE, which measures the price of goods and services except food and energy, increased by 4.6% on a 12-month basis, slightly lower than the level in January. Including food and energy, headline PCE increased 0.3% monthly and 5% annually, compared to 0.6% and 5.3% in January.
This softer-than-expected data came with monthly energy prices decreasing by 0.4% while food prices rose by 0.2%. Goods prices rose by 0.2% while services increased by 0.3%.
The report also showed that personal income increased by 0.3%, slightly above the 0.2% estimate, while consumer spending increased by 0.2%, compared to the 0.3% estimate.
Following the release of this report, the stock market futures held higher, while longer-duration Treasury yields declined. Bitcoin prices increased by 2%, trading at $28,445, and ETH increased by 3%, trading at $1,829 at the time of writing. Altcoins such as SOL, DOT, LINK, ADA, and XRP also rose by up to 5%.
The market pricing on Friday morning indicated a slight bias towards the Federal Reserve raising its benchmark rate another quarter percentage point in May. The Fed’s own projections, released last week, indicated that there might be one more increase this year and no reductions. However, traders expect cuts this year, with end-year pricing for the federal funds rate at 4.25%-4.5%, half a point below the current target range.
Inflation has remained pernicious in some areas, particularly in shelter costs, which have risen sharply. Fed officials, however, are looking through that increase and expect rents to decelerate through the year. Despite the current bank turmoil, officials have said that they remain focused on bringing down prices.
Data released on Thursday suggested that the problems in banking may be at least under control. Borrowing through two emergency Fed lending programs decreased slightly last week, indicating that there has been no frantic liquidity dash for banks that may be undercapitalized.
In conclusion, the recent inflation report has provided some hope that interest rate hikes are helping ease price increases. While inflation is expected to remain above the Fed’s 2% target into 2024, the Fed remains focused on bringing down prices despite the current bank turmoil.
Disclaimer: Please note that this article is for informational purposes only and should not be taken as investment advice. As an investor, it is important to do your own research before making any decisions. We are not responsible for any investment decisions you make based on this information. Not Financial Advice.
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