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The Federal Reserve’s preferred measure of inflation – the Personal Consumption Expenditure (PCE) price index – rose more than expected in March, confirming concerning signs of a resurgence in inflationary pressures in the first quarter of the year.
The higher-than-expected PCE report serves as a stark reality check for traders, further postponing expectations of a Federal Reserve rate cut that had already been dwindling in recent weeks.
Indicator | February 2024 | March 2024 | March (expected) |
---|---|---|---|
Headline PCE YoY | 2.5% | 2.7% | 2.6% |
Headline PCE MoM | 0.3% | 0.3% | 0.3% |
Core PCE YoY (excl. energy & food) | 2.8% | 2.8% | 2.6% |
Core PCE MoM (excl. energy & food) | 0.3% | 0.3% | 0.3% |
Market-implied probabilities indicated a 60% chance of a rate cut by September 2024, and priced in cumulatively 35 basis points of rate cuts by year-end, implying just one rate cut.
The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), inched higher minutes after the PCE release.
Futures on major U.S. averages rallied during Friday’s pre-market trading following upbeat quarterly results from Alphabet Inc. (NASDAQ:GOOGL) and Microsoft Corp. (NYSE:MSFT), which offset Thursday’s negative sentiment stemming from Meta Platforms Inc. (NASDAQ:META)’s weaker-than-expected guidance.
However, with the Fed’s preferred inflation gauge pushing any rate cut talks further into the future, traders may potentially brace for macro-related volatility in the last session of the week.
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