The Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose to 4.4% year over year in April, the U.S. Bureau of Economic Analysis reported Friday.
The increase, which was ahead of both the projected 4.3% rise and March’s 4.2% surge, indicates potential stubbornness in inflation rates. Projections of further Fed increases are now reinforced, aligning with the FOMC’s intimations that high borrowing rates may persist.
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Economists were quick to weigh in on these surprising numbers. Peter Essele, Head of Portfolio Management for Commonwealth Financial Network, noted the potential impact on the Fed’s upcoming actions: “The rise in prices puts a June hike back in play, perhaps even greater than a quarter percent hike in a last-ditch effort by the Fed to put out the inflationary fire once and for all.”
Meanwhile, Quincy Krosby, Chief Global Strategist for LPL Financial, focused on the persistence of inflation and its potential repercussions on the market: “The PCE report this morning suggests that inflation isn’t slowing quickly enough as a broad range of indicators points to a stronger economy.” However, Krosby emphasized the market’s focus on debt ceiling negotiations, hinting at their potential to alleviate concerns.
In the wake of the latest PCE Price Index data, traders increased their expectations for an interest rate hike in June. Market-implied probability for a 25-basis-point rise jumped to 46% from a previous 42%. A hike by the end of the July meeting is now almost 70% probable.
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