Wednesday, July 24, 2024
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In January, inflation rose in line with expectations, according to a key gauge used by the Federal Reserve to assess interest rate cuts. The personal consumption expenditures price index (PCE) excluding food and energy costs increased by 0.4% for the month and 2.8% from a year ago, aligning with Dow Jones consensus estimates. Similarly, the headline PCE, which includes food and energy categories, increased by 0.3% monthly and 2.4% on a 12-month basis, also meeting forecasts.

The rise in prices was accompanied by an unexpected increase in personal income, which rose by 1%, surpassing the forecast. However, spending decreased by 0.1%, contrary to the estimated gain of 0.2%. January’s price increases reflected a continued shift to services over goods as the economy recovered from disruptions caused by the COVID-19 pandemic.

Services prices increased by 0.6% on the month, while goods fell by 0.2%. On a 12-month basis, services rose by 3.9%, while goods decreased by 0.5%. Notably, food prices accelerated by 0.5%, offset by a 1.4% slide in energy prices. Despite the rise, both headline and core measures of inflation remain above the Fed’s 2% annual inflation goal.

The reaction in financial markets was relatively muted, with stock market futures slightly up and Treasury yields slightly lower. Futures markets indicated little movement, with expectations leaning towards the Fed’s first rate cut coming in June.

Federal Reserve officials commented on the recent data, acknowledging the challenges in returning to the central bank’s 2% inflation goal. They indicated expectations for rate cuts later in the year, although the timing remains uncertain. Meanwhile, consumers continued to dip into savings as prices remained elevated, with the personal savings rate slightly higher than December but lower than previous months.

In other economic news, initial jobless claims increased slightly, reflecting ongoing trends, while continuing claims rose to just above 1.9 million. Central bank officials are considering the future of monetary policy following a series of interest rate increases aimed at combating inflation. Recent data has suggested that inflation may be more persistent than initially anticipated, adding to uncertainty regarding the timing and extent of future rate cuts. However, many economists believe that short-term fluctuations in market sentiment may ultimately matter less than the long-term trajectory of rate cuts over time.


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