The latest reading of the Fed’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) index, has shown a surprising increase in prices for the month of March. The index, which excludes the cost of food and energy, rose by 2.8% over the prior year, surpassing Wall Street’s expectations of 2.7%.
This unexpected rise in inflation has raised concerns among investors, as it indicates a stronger-than-expected upward trend in prices. The Federal Reserve, which closely monitors the PCE index, has been cautious about cutting interest rates until it sees a significant decline in inflation.
Fed chair Jerome Powell emphasized the need for “greater confidence” in inflation’s decline before considering any rate cuts. The recent data on inflation, however, have not provided that confidence, with prices rising more than initially thought in January as well.
The market reaction to the latest inflation data was swift, with Treasury yields hitting their highest levels since November 2023 and stocks heading lower. Investors have also scaled back their expectations for any rate cuts by the Fed this year.
Overall, the unexpected rise in inflation has spooked investors and raised concerns about the future trajectory of interest rates. The Federal Reserve will likely continue to closely monitor inflation data in the coming months to determine its next steps.