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Fed’s Preferred Inflation Measure Bounces In January: What You Need To Know

Posted February 24, 2023 at 11:45 am
Wayne Duggan
Benzinga
SPY

ZINGER KEY POINTS

  • The PCE index rose 5.4% in January, up from 5.3% in December.
  • The Federal Reserve is expected to raise interest rates by 0.25% in March.

The SPDR S&P 500 ETF Trust SPY traded lower on Friday morning after the Bureau of Economic Analysis reported a 5.4% increase in the personal consumption expenditures (PCE) price index in the month of January, another signal the Federal Reserve has hit a speed bump in its battle against inflation.

What Happened: 

The headline PCE rose 5.4% in January on a year-over-year basis. That’s up from 5.3% in December and a 2022 high of 7% in June.

The January PCE reading came in above economist estimates of 4.9%.

Core PCE, which excludes volatile food and energy prices and is the preferred inflation measure for the Federal Reserve, was up 4.7% in January, above economist estimates of 4.3% but well below its 2022 high of 5.2% in September.

The Federal Reserve is likely closely monitoring the PCE data ahead of its March meeting. The bond market is pricing in a 76% chance the Fed will raise interest rates by another 0.25% next month, bringing its fed funds target range to between 4.75% and 5%.

The yield on 10-Year U.S. Treasury bonds was up 0.04% on Friday morning to 3.92% but is down from a peak of more than 4.2% back in November.

The S&P 500 is off to a strong start to 2023 on investor optimism the Fed may be able to pivot from rate hikes to rate cuts sooner than expected.

Earlier this month, the Labor Department reported the Consumer Price Index (CPI) was up 6.4% in January, down from a 2022 peak of 9.1% in June. The Labor Department also reported U.S. wages grew 4.4% year-over-year in January.

Originally Posted February 24, 2023 – Fed’s Preferred Inflation Measure Bounces In January: What You Need To Know

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