Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices.
Markets feared that the core 12-month inflation rate would rise for the first time since late 2022, but that didn’t happen, as core inflation held at 2.8%.
On an unrounded basis, the 12-month core PCE inflation rate dipped to 2.82% from 2.84% in February and 2.93% in January.
Over the past six months, though, core PCE inflation has been running at a 3% annual rate, unchanged from February.
Supercore Services Inflation Still, below the surface, the March inflation data did confirm that the coast is far from clear.
The 12-month supercore services inflation rate has picked up to 3.5% from 3.3% at the end of 2023.
S&P 500 The S&P 500 rose 1% in Friday stock market action, holdings and expanding on early tech-driven gains on Microsoft and Google.
The S&P 500, after diving below its 50-day moving average on April 15, is working to regain that key technical level.
Although not as bad as anticipated, the primary inflation gauge used by the Federal Reserve in March proved to be too hot for any immediate rate cuts. The SandP 500 saw a significant increase on Friday, building on gains from the previous day in response to Microsoft (MSFT) and Google parent Alphabet (GOOGL) earnings reports.
X.
Rate of Primary Fed Inflation.
The PCE price index, which measures personal consumption expenditures, increased by 0.3 percent in March. The 12-month headline inflation rate picked up to 2.7 percent vs. projections of 2 percent.
As core prices increased at a 3 point 7 percent annual rate in Q1, according to Thursday’s GDP report, markets were bracing for a hot reading.
When making decisions, the Federal Reserve typically gives core inflation—which excludes volatile prices for food and energy—more weight. In March, the core PCE price index increased by 0.3 percent, which was less severe than anticipated in light of the quarterly data.
Markets had anticipated that core inflation would rise for the first time since late 2022, but core inflation remained stable at 2.8%.
The 12-month core PCE inflation rate fell to 2 points82 percent on an unrounded basis, from 2 points84 percent in February and 2 points93 percent in January.
In February, core PCE inflation remained at a 3 percent annual rate; however, over the last six months, this rate has not changed. The 3-month annualized rate increased from 3 percent in January and 3 points 7 percent in February to 4 points 4 percent.
One factor contributing to the March data’s lack of horror was an upward revision to earlier data, which was partially reflected in the hot quarterly numbers. Core PCE prices saw an increase of 0.5 percent in January after previously rising by 0.45%.
A one-time catch-up based on historical wage and cost growth as companies adjust prices to start the year may reassure the Fed, despite the fact that this is still not great news, provided inflation continues to moderate.
The inflation of supercore services.
However, the March inflation data did support the underlying conclusion that there is still much work to be done. Examine what Wall Street now refers to as “supercore inflation,” a metric that tracks changes in core service prices (excluding housing) and was introduced by Federal Reserve chair Jerome Powell in late 2022. This more limited perspective on price fluctuations was consistent with the Federal Reserve’s concern that persistently high inflation was caused by a tight labor market and high wage growth. A large portion of expenses for service businesses are incurred by paying wages. As a result, as wage pressures lessen, supercore services inflation should also.
Prices for these essential non-housing services, such as medical care, hair styling, and lodging, increased by 0.4 percent for the month, following a somewhat milder 0.5 percent increase in February. The cost of essential non-housing services increased by 0.75 percent in January.
By the end of 2023, the 12-month rate of inflation for supercore services had increased to 3.5 percent from 3.3 percent.
Personal Revenue and Expenditure.
The monthly personal income and outlays report from the Commerce Department is released along with the PCE price index. Forecasts were met as personal income increased by 0.5 percent. In comparison, personal consumption expenditures increased by 0.8 percent in March. projections of 0.6 percent. That came after a strong increase of 0.8 percent in February.
odds of a Federal Reserve rate cut.
Market pricing following the PCE report for March indicated 29 percent odds of the first rate cut by the July 31 meeting, compared to 30 percent ahead of the data. The markets currently predict a 57 percent chance that the first cut will occur by September. 18%, compared to 59%.
The markets anticipate a 59 percent chance of a maximum rate cut of one quarter point for the entire year. That the Fed will maintain current rates is a 19% chance.
500 S&P.
Friday’s stock market action saw a 1% increase in the S&P 500, maintaining and building on early tech-driven gains on Microsoft and Google. Despite the worrying inflation data, the S&P 500 recovered significantly from its lows on Thursday, losing just 0.5 percent. Following a dip below its 50-day moving average on April 15, the S&P 500 is currently attempting to reclaim that crucial technical level.
The yield on the 10-year Treasury note dropped from 4 points71 percent to 4 points67 percent on Thursday.
For the most recent information on the current stock market trend and how it may affect your trading decisions, make sure to read IBD’s The Big Picture column following each trading day.
Possibly interesting to consider:.
The Top 5 Stocks to Purchase and Monitor Right Now Are These.
Get Stock Tips Before The Open Every Morning by Watching IBD Live.
IBD Digital: Get Access To IBD’s Analysis, Tools, And Premium Stock Lists Right Now.
How To Make Money In Stocks In 3 Simple Steps.
