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U.S. PCE prices rose 0.6% in January, stoking fears of higher Fed rates for longer

Economic Indicators Feb 24, 2023 08:43AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- The Federal Reserve's preferred measure of inflation flashed red again on Friday, adding to concerns that interest rates will have to rise some way yet in order to bring prices back under control.

The price index for personal consumption expenditures rose 0.6% in January - both in core and headline terms - while December's data were also revised higher. Analysts had reckoned with a rise of only 0.4% in the core index, which is the one most cited by the Fed.

That meant that the core rate of PCE inflation ticked up for the first time in four months, to 4.7% - still more than twice the Fed's 2% target. 

U.S. financial markets reacted negatively to the news, quickly repricing their expectations for official interest rates. By 08:40 ET (13:40 GMT), the yield on the benchmark 2-Year Treasury note - a rough proxy for Fed expectations - was up 7 basis points at 4.77%, its highest since October. The dollar index, which tracks the greenback against a basket of developed market currencies, jumped 0.5% to 105.04, a seven-week high. S&P 500 futures meanwhile fell over 1.3%.

Stock and bond markets have been under pressure for over a week now as a string of data releases have suggested that the economy is not coming off the boil as quickly as seemed to be the case at the end of last year, when the headlines were dominated by a succession of mass layoffs at big technology companies. Successive reports from the labor market have showed the newly laid-off being rapidly absorbed by companies that - nationwide - have almost two jobs available for every unemployed person. 

Other data released at the same time also showed that consumer spending held up more strongly than expected in January. Personal spending rose 1.8% from December – the biggest monthly rise since March 2021 - even though incomes rose by a smaller-than-expected 0.6%. The income figure was a crumb of consolation for those arguing that there is little or no evidence to suggest that excessive wage growth is driving inflation. Wage growth adjusted for inflation has been negative for well over a year. 

Even so, "with spending strong, inflation should prove stickier than initially expected," said Kathy Jones, chief fixed-income strategist with Charles Schwab, via Twitter. "The markets are still pricing in a peak fed funds rate in the 5.25% to 5.5% range, but that peak expected rate keeps inching higher."

U.S. PCE prices rose 0.6% in January, stoking fears of higher Fed rates for longer
 

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Comments (15)
Erikke Evans
Erikke Feb 24, 2023 12:29PM ET
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The Fed is a joke. Fed Funds rate should have been above the inflation rate by now. This is why inflation is moving down so slowly. They're behind the curve...as always.
steve
steve Feb 24, 2023 11:17AM ET
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most of us alreay knew that PCE data would come in high...  IMO just looks at the cost of everything over the last 2 years... everything is up about 40 percent.... not sure employeers are giving a 40 wage increase.  This is why savings are nothing and credit cards balance are high. The experts tell us "dont worry" housing prices are down so we will get a good read.  not true... looks at home prices the last 2 years... the increase is at least 30% . So if we have it drop 6-15 percent that still doesn't make it abortable for the average person with the interest rates at what they are...  Also lets not mention Housing Inventory levels are still low in most parts of the country.  i am not en expert just a regular person living in the real world... . imo the only way to get this inflation down in a timely manner is to send us into a recession. ..
JIM VETTER
JIM VETTER Feb 24, 2023 11:17AM ET
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it's coming
Derick Lim
Derick Lim Feb 24, 2023 9:30AM ET
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Don't worry....by next week plenty of sock puppet analysts will turn the fear into greed with plenty of feel.good news......
Hank Williams
Hank Williams Feb 24, 2023 9:26AM ET
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Big tech has a long way to go. Oh I forgot AI is washing my car.
Anthony Hernandez
Anthony Hernandez Feb 24, 2023 9:26AM ET
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which way hank? long way down?
Steven Heckler
Steven Heckler Feb 24, 2023 9:24AM ET
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Dah
Loke Wing Kin
Loke Wing Kin Feb 24, 2023 9:23AM ET
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100 basis point next month
Roger Miller
Roger Miller Feb 24, 2023 9:14AM ET
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The Fed officials been saying exactly this, but forget the hype of a soft landing, with this high of inflation it’s not a possibility. We’re now paying for all those misguided pandemic policies and what we thought was free money, not to mention foreign war funding.
Warm Camp
Warm Camp Feb 24, 2023 9:14AM ET
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yes, stupidity comes with price. It can be noted also, that the same stupidity persists.
Ken Roth
Ken Roth Feb 24, 2023 9:14AM ET
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Roger you should confine your comments to your home country russia where you have a lot more problems
Steven Heckler
Steven Heckler Feb 24, 2023 9:14AM ET
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Thumbs up the other guy must be a bot how could he be that misguided
Stephen Fa
Stephen Fa Feb 24, 2023 9:14AM ET
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Ken needs a shrink. He see Russians everywhere.
G D
G D Feb 24, 2023 9:09AM ET
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Don't say we didn't tell ya- but then again being petty is fun. Start living in reality.
Antesh Garg
Antesh Garg Feb 24, 2023 9:04AM ET
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amrica iss totally week.... Joe Biden iss foolest president of amrican history....India iss the best option in share market....2023 nifty high level 23500...
Maximus Maximus
Maximus Maximus Feb 24, 2023 9:04AM ET
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coming from someone as literate and well-spoken as you, I just have to take your word for it. sold all my US holdings today and went all in on adani enterprises!
Ahpooki Tai
Ahpooki Tai Feb 24, 2023 9:00AM ET
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yes..let the feds increase the rate more and more so that the economy gets destroyed ..
Mike Sim
Mike Sim Feb 24, 2023 9:00AM ET
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The economy is already destroyed. Have you seen the price of eggs? Beef? Or anything else?
 
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