ZINGER KEY POINTS
- March’s PCE price index exceeded expectations, signaling persistent inflationary pressures.
- Core PCE, excluding energy and food, held steady at 2.8%, missing forecasts of a decline to 2.6%.
The Federal Reserve’s preferred measure of inflation – the Personal Consumption Expenditure (PCE) price index – rose more than expected in March, confirming concerning signs of a resurgence in inflationary pressures in the first quarter of the year.
The higher-than-expected PCE report serves as a stark reality check for traders, further postponing expectations of a Federal Reserve rate cut that had already been dwindling in recent weeks.
March PCE Report: Key Highlights
- The headline PCE price index rose from 2.5% in February 2024 to 2.7% year-on-year in March, beating forecasts of a 2.6% increase, the Bureau of Economic Analysis reported Friday.
- On a monthly basis, the headline PCE accelerated by 0.3%, unchanged from the 0.3% recorded in February, and matching expectations.
- When excluding energy and food expenses, the core PCE price index held steady at 2.8% year-on-year, surpassing predictions of a decline to 2.6%.
- On a month-over-month basis, the core PCE advanced at a 0.3% pace, unchanged from both the previous and expected 0.3%.
| Indicator | February 2024 | March 2024 | March (expected) |
|---|---|---|---|
| Headline PCE YoY | 2.5% | 2.7% | 2.6% |
| Headline PCE MoM | 0.3% | 0.3% | 0.3% |
| Core PCE YoY (excl. energy & food) | 2.8% | 2.8% | 2.6% |
| Core PCE MoM (excl. energy & food) | 0.3% | 0.3% | 0.3% |
Market Reactions
Market-implied probabilities indicated a 60% chance of a rate cut by September 2024, and priced in cumulatively 35 basis points of rate cuts by year-end, implying just one rate cut.
The U.S. dollar index (DXY) inched higher minutes after the PCE release.
Futures on major U.S. averages rallied during Friday’s pre-market trading following upbeat quarterly results from Alphabet Inc. and Microsoft Corp. which offset Thursday’s negative sentiment stemming from Meta Platforms Inc. weaker-than-expected guidance.
However, with the Fed’s preferred inflation gauge pushing any rate cut talks further into the future, traders may potentially brace for macro-related volatility in the last session of the week.
Fed’s Key Inflation Indicator Hits 2.8%, Dashes Rate Cut Hopes; Traders On Alert
Disclosure: Benzinga
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