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Market Analysis
PCE, the Fed’s Preferred Inflation Gauge, Rose Above Estimates in January: Up 0.6% MoM
PCE Price Index and Core PCE Price Index rose by 0.6% month-over-month in January, refueling worries over further rate hikes.
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The Federal Reserve’s preferred inflation measure Core Personal Consumption Expenditures (PCE) Price Index, rose by 0.6% on a monthly basis in January, above the market expectations of 0.4%. PCE Price Index also exceeded estimates, pushing US stock futures into the red on Friday.
PCE Inflation and Core PCE Inflation Climbed by 0.6%
According to the US Bureau of Economic Analysis, the PCE Price Index, a measure of inflation in the US based on the change in prices of goods and services purchased by consumers, climbed to 5.4% annually in January from 5.3% in December. The print was notably higher than economists’ expectations of 4.9%
The Core PCE Price Index, which measures the prices consumers paid for domestic goods and services, excluding food and energy costs, increased to 4.7% in January, up from 4.6% a month earlier and above consensus estimates of 4.3%. The core PCE is the Federal Reserve’s preferred inflation gauge.
Month-over-month, both PCE inflation and Core PCE inflation surged by 0.6%, compared to respective estimates of 0.5% and 0.4%.
Other parts of the report revealed that Personal Income saw a monthly increase of 0.6% in January, while Personal Spending rose by 1.8% during that period. This compares with market expectations of 0.9% and 1.3%, respectively.
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Stock Futures Fall on PCE Numbers
The increases in PCE inflation and Core PCE inflation put additional pressure on the US markets, with stock futures declining. The Dow Jones Industrial Average (DJIA) futures fell by 1.6%, while S&P 500 and Nasdaq-100 futures lost 1.2% and 1.7%, respectively.
Cleveland Federal Reserve President Loretta Mester said that the new data fueled concerns that the Fed might have to keep hiking interest rates for a while longer to tame the persisting inflation. She said the Fed would likely have to raise interest rates above 5%.
“We’ll figure out how much above. That’s going to depend on how the economy evolves over time. But I do think we have to be somewhat above 5% and hold there for a time in order to get inflation on a sustainable downward path to 2%.”
– said Cleveland Federal Reserve President Loretta Mester.
The US central bank raised interest rates by 25 basis points (bps) earlier this month, marking a small increase compared to a series of jumbo hikes in 2022. But the latest inflation data could force the Fed to reconsider its recent loosening at its next policy meeting on March 21-22.
Do you think US inflation will cool in the near future? Let us know in the comments below.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
