Prices rose again at an unexpectedly fast pace in March, according to the Fed’s recommended inflation measure, pushing back the timing of interest rate cuts again.
The Core Personal Consumption Expenditure Price Index rose 0.3% in March from the previous month and 2.8% from a year earlier, according to the latest data from the Bureau of Economic Analysis released on Friday.
The core figure, which excludes volatile food and energy prices, was flat from February’s 2.8% rise, above the 2.6% that economists in FactSet expected.
Composite PCE, which takes food and energy into account, rose 0.3% last month, or 2.7% on an annualized basis, also exceeding expectations of 2.6%.
Historically, a strong job market has kept wages and consumer spending levels rising, thereby fueling inflation and interest rates, leading Fed officials to broadly predict that they would triple interest rates by the end of the year, by a cumulative 0.75 percentage point. Expect.
The economic data was released just one day after the Commerce Department reported that the U.S. economy grew at its slowest pace in two years in the first quarter.
Gross domestic product (GDP) grew at an annual rate of 1.6% For the three months ending in March, it was below the 2.4% estimate of economists polled by the Wall Street Journal.
More troubling is that prices remain stable, according to Friday’s PCE survey.
The closely watched figure remains a far cry from the Fed’s 2% target, which the U.S. economy hasn’t seen in more than a decade.
Policymakers are struggling to inch closer to that lofty goal in the face of persistently high inflation and a surprisingly resilient labor market.
For example, the latest jobs report for March exceeded economists’ expectations, with employers increasing payrolls by a staggering 303,000 jobs last month.
Historically, this data point was not a good time to cut interest rates, as a strong job market has kept wages and consumer spending levels rising, thereby fueling inflation and interest rates.
Employers are also paying higher wages thanks to a new minimum wage law similar to the one that took effect this month in California, but markup prices for food, gasoline, rent and many other items are still rising since the post-pandemic hike. It remains as it is. .
Traders agree that the Fed will hold off on cutting interest rates from their current 23-year high of 5.25% to 5.5% until September.
It also expects two 25 basis point rate cuts, for a total of 75 basis points, instead of the three expected rate cuts this year.
Stubborn inflation complicates President Joe Biden’s claims of steady progress against rising prices. Biden had previously suggested that lower inflation would lead to a Fed rate cut, but he sidestepped that prediction earlier this month.
Biden also tried Thursday to spin GDP statistics in his favor, stressing that “the economy has grown more since I took office than it has at this point in any presidential term in the last 25 years.”
But since the 81-year-old commander-in-chief took office, America’s debt has soared to $33 trillion, the highest on record.
According to the International Monetary Fund, the debt-to-GDP ratio is currently over 100%, at 123%, and this ratio is projected to reach 130% by 2035.
