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The Fed’s priority inflation gauge was etched high in February, but consumer spending continued to be disappointed and painted uncertain pictures due to future monetary policy moves.
The annual Core Personal Consumption Expense Index (PCE) is 2.8%, far from the 2% target of central bankers. Economists had predicted a 12-month read of 2.7%. Core PCE increased by 0.4% in the month of the month. This was higher than the estimate, at 0.3%.
Inflation-adjusted consumer spending reached the bottom edge of the estimate as it only rose 0.1% last month. Analysts hoped that warm weather would surge spending after a severe winter in most parts of the country.
Even if personal income increased by 0.8%, spending fell below expectations compared to forecasts of 0.4% increase.
Long-term inflation expectations were also rising. The University of Michigan’s one-year forecast for inflation is currently 5%. This is the third month in which the index has increased.
The Fed fund futures market currently prices a 13% chance that the Fed would choose to cut interest rates in May.
Naturally, the stocks were not receiving good inflation news. The S&P 500 lost up to 1.5% in the first few hours of Friday’s session. The Index is poised to close the first quarter with its worst quarterly performance since 2023. The Nasdaq composite slipped almost 2% in the first half of the trading day.
But Doom and the darkness may not last very long, Etro analyst Brett Kenwell said.
“Historically speaking, the S&P 500 tends to perform very well in mild inflation environments with a core PCE of 2% to 4% per year,” he explained. “But investors don’t seem to care about historical statistics right now.”
You can say it again. Have a great weekend, everyone. I look forward to a better performance next week.
