U.S. Inflation Moderately Rises in March, Fed Expected to Hold Rates Until September
The Commerce Department’s Bureau of Economic Analysis reported a moderate increase in U.S. inflation for March, with the Personal Consumption Expenditures (PCE) price index rising by 0.3%. This aligns with February’s unrevised 0.3% gain.
Year-on-year inflation rose to 2.7% in March, up from 2.5% in February, slightly exceeding economists’ expectations of a 2.6% increase. The PCE price index is a key measure for the Federal Reserve’s 2% target inflation rate.
Economists anticipated a 0.3% month-on-month increase in the PCE price index, with ongoing monthly inflation readings of 0.2% deemed necessary to meet the inflation target.
Concerns arose following the advance Gross Domestic Product (GDP) report for Q1, which showed a notable increase in price pressures, primarily driven by rising costs in services such as transportation, financial services, and insurance. This surge outweighed declines in goods prices.
Most of the inflation resurgence seems concentrated in the first two months of the year, suggesting a possible stabilization going forward.
The Federal Reserve is expected to maintain its current interest rates during its upcoming meeting next week. Since July, the central bank has held its benchmark overnight interest rate steady within the 5.25%-5.50% range, having raised it by 525 basis points since March 2022.
Initial market expectations for a rate cut in March were postponed to June and now to September due to labor market and inflation data consistently outperforming expectations in 2024.
Traders increased their wagers on the possibility of the U.S. Federal Reserve implementing its initial interest rate reduction this year in September, following a government report confirming the anticipated rise in U.S. inflation last month. Before the report, interest-rate futures prices indicated a likelihood of less than 60% for a rate cut at the U.S. central bank’s mid-September meeting. However, after the report, which indicated a 0.3% increase in the personal consumption expenditures (PCE) price index from February, those chances rose to about 65%.
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