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), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, 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. GOOGL and Microsoft Corp. MSFT, which offset Thursday’s negative sentiment stemming from Meta Platforms Inc. META’s 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.
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