Recent Federal Reserve Inflation Rate News Impacts Rate Cuts; S&P 500 Increases

The latest inflation data released by the Federal Reserve has shown that price pressures warmed up in January, although not as severe as initially feared. The core PCE price index, considered the primary indicator of inflation by the Fed, revealed that prices rose by 0.3% in January, in line with expectations.

Despite the uptick in inflation, the S&P 500 saw a modest increase following the release of the data. The 12-month headline inflation rate eased to 2.4%, matching estimates, while core inflation, which excludes volatile food and energy prices, rose by 0.4%, in line with forecasts.

Goods prices experienced a slight decline of 0.2% in January, while services prices rose by 0.6%. Federal Reserve chair Jerome Powell has stressed the importance of observing six months of subdued inflation data to confirm a disinflationary trend.

Wall Street has largely dismissed January’s increase in core prices as a potential anomaly, with market pricing showing an increasing likelihood of a Fed rate cut by June 12. Additionally, personal income surged by 1% in January, surpassing forecasts, while personal consumption expenditures rose by 0.2%.

On the other hand, jobless claims rose slightly in the week ending Feb. 24, leading some economists to anticipate a significant rise in the coming months. The focus on core PCE services excluding housing, known as supercore services, aims to alleviate inflation as wage pressures moderate.

Following the inflation data release, the S&P 500 climbed by 0.2%, and the 10-year Treasury yield fell to a two-week low of 4.23%. Market analysts are now pricing in a year-end 2024 Fed funds rate of 4.54%, indicating expectations of monetary policy adjustments in the near future.