The latest US inflation report revealed a 2.5% increase in the Personal Consumption Expenditures price index for the 12 months ending in February, driven by a 2.3% rise in energy prices. The Fed remains further from its 2% inflation goal. Core inflation, excluding energy and food, slowed slightly to 2.8%. Monthly price increases saw a slight drop to 0.3%. Goods prices rose by 0.5%, outpacing services prices at 0.3%. The rise in service prices, driven by labor shortages, remains a challenge despite historic rate increases. Consumer spending accelerated by 0.8% in the latest data.
A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time. The CPI is calculated by using a representative basket of goods and services. The basket is updated periodically to reflect changes in consumer spending habits. The prices of the goods and services in the basket are collected monthly from a sample of retail and service establishments. The prices are then adjusted for changes in quality or features. Changes in the CPI can be used to track inflation over time and to compare inflation rates between different countries. The CPI is not a perfect measure of inflation or the cost of living, but it is a useful tool for tracking these economic indicators.
The PCE price index (PePP), also referred to as the PCE deflator, PCE price deflator, or the Implicit Price Deflator for Personal Consumption Expenditures (IPD for PCE) by the Bureau of Economic Analysis (BEA) and as the Chain-type Price Index for Personal Consumption Expenditures (CTPIPCE) by the Federal Open Market Committee (FOMC), is a United States-wide indicator of the average increase in prices for all domestic personal consumption. It is benchmarked to a base of 2012 = 100. Using a variety of data including U.S. Consumer Price Index and Producer Price Index prices, it is derived from the largest component of the GDP in the BEA's National Income and Product Accounts, personal consumption expenditures.The personal consumption expenditure (PCE) measure is the component statistic for consumption in gross domestic product (GDP) collected by the United States Bureau of Economic Analysis (BEA). It consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. The less volatile measure of the PCE price index is the core PCE (CPCE) price index, which excludes the more volatile and seasonal food and energy prices.In comparison to the headline United States Consumer Price Index (CPI), which uses one set of expenditure weights for several years, this index uses a Fisher Price Index, which uses expenditure data from the current period and the preceding period. Also, the PCEPI uses a chained index which compares one quarter's price to the previous quarter's instead of choosing a fixed base. This price index method assumes that the consumer has made allowances for changes in relative prices. That is to say, they have substituted from goods whose prices are rising to goods whose prices are stable or falling.PCE has been tracked since January 1959. Through July 2018, inflation measured by PCE has averaged 3.3%, while it has averaged 3.8% using CPI. This may be due to the failure of CPI to take into account the substitution effect. Alternatively, an unpublished report on this difference by the Bureau of Labor Statistics suggests that most of it is from different ways of calculating hospital expenses and airfares.
The U.S. Federal Reserve has maintained its key interest rate steady at 5.25-5.5% for the fifth consecutive time, citing expanding economic activity and moderate inflation. The Federal Open Market Committee signaled three rate cuts this year, with a forecast of 75 basis points of rate cuts in 2024 to 4.6%. The median forecast for 2024 U.S. economic growth has increased to 2.1% from 1.4%, while PCE inflation remains at 2.4%. Fed Chair Jerome Powell noted that inflation, although easing, remains above the 2% target, and the Fed is committed to achieving that goal.
Federal Reserve Chair Jerome Powell hinted at the possibility of rate cuts to tackle rising inflation, but recent data showing higher-than-expected consumer and wholesale inflation have raised questions on the timing. The Fed is expected to maintain rates at a 23-year high of nearly 5.4% for the fifth consecutive time this week. Economists anticipate potential rate cuts in June amidst concerns of a weakening economy despite a healthy employment rate. Other major central banks like the European Central Bank are keeping rates high to combat inflation, while Japan raised its benchmark rate for the first time in 17 years.
The Federal Reserve\'s interest rate forecasts are flashing warning signs of a recession just around the corner, top economist David Rosenberg says. \"The Fed doesn\'t want to say this explicitly, but it is actually saying (in not so many words) that a recession is very likely coming our way,\" Rosenberg said in a note on Thursday. Despite the Fed\'s optimistic forecast of 2.1% GDP growth and a 4% unemployment rate, Rosenberg sees officials\' prediction of a sharp drop in the median federal funds rate as a recession indicator. Related stories The Fed anticipates the median federal funds rate will drop by 150 basis points to 3.
The Federal Reserve reported a record $114.3 billion loss in 2023 as it faced challenges managing its short-term interest rate target, following a net income of $58.8 billion in 2022. Despite the loss, the Fed reiterated that it does not hinder its ability to operate or conduct monetary policy. The Fed\'s move to raise the federal funds rate disrupted central bank finances with interest expenses for banks hitting $176.8 billion in 2023. The Fed can create money to fund its operations, holding a deferred asset of $157.8 billion as of March 2023.
After climbing last week, average 30-year mortgage rates have decreased to below 6.5%, as investors anticipate potential Federal Reserve rate cuts this year. The Fed has indicated a possibility of cutting the federal funds rate three times in 2019 if inflation shows signs of slowing. Mortgage rates are influenced by investors\' beliefs about Fed actions and the broader economy, with expectations that rates may trend down as the summer approaches.
US stocks ended the week with gains after a two-day rally fueled by the Federal Reserve\'s March meeting. The S&P 500, Nasdaq, and Dow Jones Industrial Average all saw increases. The Fed\'s dot-plot predicts three interest-rate cuts for 2024. Bitcoin ETFs experienced significant outflows totaling $836 million. Nasdaq reached a new record high amidst optimism for a reversal in interest rate hikes. FedEx shares rose by 7% following improved operating margins.
The S&P 500, Dow Jones, and Nasdaq dipped slightly after a strong start to 2024. Traders are cautious ahead of the release of the Personal Consumption Expenditures price index. The Fed\'s bullish economic forecasts have boosted market sentiment. Shares of AMD and Intel fell on reports of China phasing out their chips. Boeing\'s CEO announced his departure amidst safety concerns. Electric vehicle startup Fisker sees share halt and decline after failed talks with automaker. Foot Locker struggles with sales and margins, but analyst predicts rebound. Chipotle\'s CEO Brian Niccol discusses growth and tech initiatives. Investors monitor Fed commentary and await inflation data. Mega-cap tech stocks drop after EU investigations and US antitrust lawsuit against Apple.
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