Fed's Preferred Inflation Gauge Matches Estimates; Personal Spending Slows More Than Predicted (CORRECTED)

Editor’s note: This story has been updated to reflect that personal income growth matched economist expectations in April.

The Federal Reserve’s preferred inflation measure held steady in April, aligning with economist expectations, yet keeping investors anxious about potential rate cuts.

The Personal Consumption Expenditure (PCE) price index – which tracks price pressures across a wide range of goods and services purchased by U.S. consumers – rose by 2.7% compared to April 2023.

This reading may not alleviate fears that policymakers could choose to maintain higher interest rates for an extended period to ensure a steady return to the 2% target.

Simultaneously, the Bureau of Economic Analysis said that both personal income and personal spending growth rates sharply decelerated in April, indicating slowing consumer momentum.

April’s Personal Income, Outlays Report: Key Highlights

• The headline PCE inflation rate held steady at 2.7% year-on-year in April 2024, matching economist expectations, according to Econoday data.
• From the same month one year ago, prices for services increased by 3.9%, while prices for goods rose by 0.1%. Food prices increased by 1.3%, and energy prices increased by 3%.
• On a monthly basis, the headline PCE inflation rate stood at 0.3%, in line with both the previous and the expected rate of 0.3%.
• The core PCE inflation rate – which excludes foods and energy – remained at 2.8% in April, matching both the previous and expected 2.8%.
• On a monthly basis, the core PCE inflation inched up by 0.2%, decelerating from March’s 0.3% pace and matching forecasts of 0.3%.
• Personal income rose at a 0.3% monthly rate, slowing down from March’s 0.5% growth and matching expectations.
• Personal spending advanced at a 0.2% pace, decelerating from March’s 0.8% growth and missing expectations of 0.3%.

Category	April-24	March 2024	Expected
Headline PCE Inflation Rate (YoY)	2.7%	2.7%	2.7%
Headline PCE Inflation Rate (Monthly)	0.3%	0.3%	0.3%
Core PCE Inflation Rate (YoY)	2.8%	2.8%	2.8%
Core PCE Inflation Rate (Monthly)	0.2%	0.3%	0.3%
Personal Income (Monthly)	0.3%	0.5%	0.3%
Personal Spending (Monthly)	0.2%	0.8%	0.3%

Market Reactions:

The relatively in-line PCE inflation readings sparked a slightly downtick in Treasury yields. The 10-year benchmark yield fell by 2 basis points to 4.53%, extending Thursday’s decline.

Overall, traders are anticipating only 34 basis points of rate cuts by the end of the year.

During Friday’s premarket trading, futures on major U.S. indices traded positively, with the S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, up by 0.3% at 8:35 a.m. in New York.

Unless a major rally occurs, Wall Street is expected to end the week in negative territory, breaking a five-week winning streak.

Read now: Wall Street Gears Up For Strong May Finish Even As Futures Slip On Inflation Data Jitters: Analyst Predicts June Slowdown Before H2 Surge

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