Fed's Preferred Inflation Gauge Eases, Yet Tariff-Driven Auto Spending Clouds Outlook

A closely watched inflation gauge used by U.S. policymakers cooled in March, signaling easing price pressures ahead of the April 2 tariff announcement, as consumers and businesses assessed the potential economic impact.

The Personal Consumption Expenditures (PCE) price index rose 2.3% year-over-year, slowing from February's upwardly revised 2.7% and just slightly above expectations of 2.2%. On a monthly basis, headline PCE was unchanged, a sharp deceleration from the 0.4% increase seen in February, and matching expectations.

Stripping out food and energy, core PCE, the Federal Reserve's preferred inflation measure, came in at 2.6% year-over-year, matching forecasts but down from February's revised 3%.

On a monthly basis, core prices were flat, defying consensus for a 0.1% rise and cooling from the prior 0.4% surge.

Before the PCE report, the U.S. Bureau of Economic Analysis reported that first-quarter GDP contracted by 0.3% on an annualized basis, a sharp reversal from the 2.4% growth in the previous quarter and well below expectations for a 0.4% expansion.

Money markets are currently pricing in a 65% chance of a 25-basis-point interest rate cut by the Federal Reserve’s June meeting.

Automobile Spending Soars As Consumers Front-Run Tariffs

Personal income rose 0.5% month-over-month, slightly beating expectations of 0.4%, though slowing from February's revised 0.7% increase.

Meanwhile, personal spending increased by 0.7% as consumers rushed to get ahead of the tariff impact. The outcome marks an increase from February's 0.5% and well above the 0.4% forecast.

Of the $134.5 billion monthly increase in spending, $56.6 billion was allocated to motor vehicles and parts, indicating precautionary buying behavior ahead of potential price increases.

Spending on gasoline and other energy goods fell by $29.8 billion.

Market Reactions: Stocks Slide As Traders Digest Mixed Macro Signals

The inflation cooldown failed to calm markets, as strong spending and tariff-related distortions sparked fears of policy uncertainty and stagflation.

S&P 500 Top Gainers

• Seagate Technology Holdings plc STX up 7.7% to $87.85
• Trane Technologies plc TT up 5.5% to $372.88
• Western Digital Corporation WDC up 4.7% to $42.52
• GE HealthCare Technologies Inc. GEHC up 4.0% to $70.83
• PPG Industries, Inc. PPG up 3.7% to $107.67

S&P 500 Top Losers

• Super Micro Computer, Inc. SMCI down 15.6% to $30.37
• Norwegian Cruise Line Holdings Ltd. NCLH down 10.5% to $15.55
• First Solar, Inc. FSLR down 9.4% to $124.28
• Edison International EIX down 8.1% to $53.96
• Starbucks Corporation SBUX down 7.5% to $78.45

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