Does PCE data support Fed’s ‘higher for longer stance’?

The US Bureau of Economic Analysis reports that after rising by 2.4% in January, the US Core PCE inflation rate climbed to 2.8% YoY in February. This is in line with market estimates and comes after a 2.4% gain in January.

While the monthly result showed 0.3% as expected, the core PCE Price Index, which does not include volatile food and energy costs, gained 2.8% annually, matching analysts’ forecasts. It was determined that the core PCE Price Index for January was 2.9% YoY and 0.5% MoM. The market’s response to the inflation data was restrained by the widespread Easter holiday, but the news is dismal for those getting ready for impending rate reduction in the US.

The readings for February and the upward revision for January indicate the Federal Reserve has a strong argument for maintaining higher interest rates for an extended period of time. Investors may decide to forgo a cut until after June or stick with just two 25 basis point cuts until 2024 after evaluating employment-related data that is expected out next week. The news also caused stock futures to slightly decline.