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Fed’s Preferred Inflation Measure Continues To Fall As Investors Prepare For One More Interest Rate Hike

Posted April 28, 2023 at 12:00 pm
Wayne Duggan
Benzinga

ZINGER KEY POINTS

  • The bond market is pricing in an 85.8% chance of another 0.25% Fed rate hike in May.
  • Core PCE, the Federal Reserve’s preferred inflation measure, was up 4.6%.

Index ETFs traded lower by 0.3% on Friday morning after the Bureau of Economic Analysis reported a 4.2% increase in the personal consumption expenditures price index in the month of March, suggesting the Federal Reserve still has a long way to go in its battle against inflation.

What Happened: 

The headline PCE rose 4.2% in March, down from 5% in February and a 2022 high of 6.8% in June. The March PCE reading came in below economist estimates of a 4.6% gain.

Core PCE, which excludes volatile food and energy prices and is the preferred inflation measure for the Federal Reserve, was up 4.6% in March, above economist estimates of a 4.5% gain.

The latest CPI inflation reading comes after the Federal Reserve issued another 0.25% interest rate hike in March, bringing its Fed funds target range to between 4.75% and 5%. The bond market is pricing in an 85.8% chance of another 0.25% Fed rate hike in May.

The Federal Reserve is in a very difficult situation of attempting to continue to bring down inflation even as a banking crisis has undermined Americans’ confidence in the financial sector.

At the Fed’s post-meeting press conference in March, Fed Chair Jerome Powell said the Federal Open Market Committee is monitoring the credit market closely.

“Financial conditions seem to have tightened, and probably by more than the traditional indexes say. … The question for us, though, is how significant will that be — what will be the extent of it, and what will be the duration of it,” Powell said.

Earlier this month, the Labor Department reported a 5% increase in the consumer price index in March, down from a 2022 peak of 9.1% in June. The Labor Department also reported that U.S. wages grew 4.2% year-over-year in March.

Originally Posted April 28, 2023 – Fed’s Preferred Inflation Measure Continues To Fall As Investors Prepare For One More Interest Rate Hike

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