Inflation Rises in Line with Expectations, Fed Considers Rate Cut Amid Economic News

In January, inflation rose in line with expectations, according to an important gauge used by the Federal Reserve as it considers cutting interest rates.

PCE Price Index

The personal consumption expenditures (PCE) price index excluding food and energy costs increased by 0.4% for the month and 2.8% from a year ago, as expected. Meanwhile, the headline PCE, including food and energy costs, saw a monthly increase of 0.3% and a 12-month rise of 2.4%, aligning with estimates.

Price Movement

The price increases in January reflected a shift to services over goods as the economy normalized from the Covid pandemic disruptions. Services prices rose by 0.6% on the month, while goods fell by 0.2%. Over a 12-month period, services increased by 3.9% and goods were down by 0.5%. Notably, food prices accelerated by 0.5%, while energy prices experienced a 1.4% decline. On a year-over-year basis, food prices were up by 1.4%, while energy fell by 4.9%.

Market Impact and Outlook

The news showed modest impacts on markets, with stock market futures mixed and Treasury yields slightly higher. Additionally, futures markets indicated little movement, with pricing tilted toward the Fed's first rate cut potentially coming in June.

Consumer Behavior and Economic Indicators

The report also revealed that consumers are continuing to dip into savings as prices remain elevated. The personal savings rate was 3.8% in January, slightly higher than in December but down a full percentage point from June 2023.

Labor Market Data

On the other hand, a Labor Department report showed that companies are still reluctant to lay off workers. Initial jobless claims totaled 215,000 for the week ended Feb. 24, surpassing the Dow Jones estimate and indicating a slight increase from the previous period. Continuing claims, which run a week behind, rose to just above 1.9 million, slightly higher than the FactSet estimate.