Core PCE prices rose 2.8% in March in the US… Surpassing market forecast again

The U.S. inflation index, which the U.S. central bank Federal Reserve (Fed) mainly references in making monetary policy decisions, was found to be higher than market expectations in March. With US inflation showing signs of rising rather than falling this year, the timing of the Federal Reserve’s interest rate cut has become a fog.

The U.S. Department of Commerce announced on the 26th (local time) that the ‘core’ personal consumption expenditures (PCE) price index rose 2.8% in March compared to the same period last year. The core price index refers to the price index calculated by excluding highly volatile food and energy prices. The core PCE price index increase rate in March was higher than market expectations (2.7%) and was the same as the February index. The overall headline PCE price index, including food and energy, also rose 2.7% compared to the previous year, exceeding the forecast (2.6%). Compared to the previous month, both core PCE and headline PCE increased by 0.3%.

U.S. inflation, which had been falling toward the Federal Reserve’s target last year, has exceeded market expectations for three consecutive times this year. The core PCE price index increase rate in the first quarter of the previous day was 3.7%, significantly exceeding the market forecast (3.4%).

However, the New York stock market, which fell the previous day due to signs of US stagflation, does not appear to be greatly disturbed by the new inflation indicator today. This is because the decline in expectations of an interest rate cut has already been priced in, and the rate of increase compared to the previous month was consistent with the market outlook. Accordingly, the interest rate on 10-year U.S. Treasury bonds is falling to the 4.6% range.

According to the Chicago Mercantile Exchange’s FedWatch, policy rate futures investors are betting on the possibility of two interest rate cuts this year, evaluating the likelihood of interest rates falling by September at about 60%. However, some analysts say that it will be difficult to lower interest rates before the presidential election on November 5th. Bloomberg News analyzed that “inflation is casting a heavy shadow over the U.S. economy” and that “it is a difficult economic situation for President Joe Biden ahead of the presidential election.”

New York = Correspondent Kim Hyun-soo [email protected]