Fed's Go-To Inflation Gauge Hits The Mark, Personal Income Surges In January

The Federal Reserve’s preferred measure of inflation – the Personal Consumption Expenditure (PCE) price index – matched expectations in January, underscoring progress in the path to the 2% inflation target.

Ahead of the release, traders had been leaning towards the likelihood of a Fed rate cut by the end of the first half.

January’s PCE Report: Key Highlights

• The annual PCE inflation rate eased slightly from 2.6% in December 2023 to 2.4% in January 2024, matching the anticipated decline to 2.4%, according to the Bureau of Economic Analysis (BEA) report released Thursday.
• On a monthly basis, the PCE price index edged up by 0.3%, picking up pace from the previous month’s 0.2% increase and meeting expectations.
• Excluding energy and food, the core PCE index saw a year-on-year surge of 2.8%, down from the 2.9% rate seen December and in line with the expected decrease to 2.8%.
• Month-over-month, the core PCE rose by 0.4%, accelerating from December’s 0.2% pace and matching the anticipated 0.4%.
• Simultaneously, personal income saw a 1% increase in January, significantly higher than previous month’s 0.3% print, well above expectations of 0.4%.
• However, personal spending only inched up by 0.2% month-over-month, marking a slowdown from the previous month’s 0.7% increase, and matching expectations.
• Weekly jobless claims inched higher from 202,000 to 215,000 for the week ending Feb. 24, slightly above the expected 210,000.

Initial market reactions: Yield, Dollar Rise

Ahead of Wall Street opening bells, yields on U.S. Treasury bonds fell across the board, with the 10-year benchmark yield falling to 4.28%, minutes after the PCE release.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), inched lower.

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