The Federal Reserve's favorite inflation indicator cooled down in February, while household spending surged.

On Friday March 29, the latest data from the US Department of Commerce showed that the Federal Reserve's preferred inflation target and the February core PCE price index after excluding food and energy grew 2.8% year on year, the lowest level since March 2021. It remained flat with market expectations, and the revised value of the previous value was 2.9%;

It fell to 0.3% month-on-month, in line with expectations. The index was revised to 0.5% month-on-month in January, the biggest “back-to-back” increase in a year. Compared to the overall index, the core index is a better measure of potential inflation.

Driven by rising gasoline prices, the US PCE (personal consumption expenditure) price index rose to 2.5% year on year from 2.4% year on year, in line with market expectations; 0.3% month-on-month, and the previous value and market expectations were 0.4%.

Based on a six-month annualized calculation, the core PCE data accelerated to 2.9%, the fastest since July last year. At the end of last year, it once fell below the Federal Reserve's 2% target.

Durable goods deflation slowed in February, and inflation in non-durable goods accelerated. The so-called supercore -- service inflation, which does not include housing, remained at around 3.33% year over year, but the core fell sharply month-on-month, and the increase in healthcare and financial services was much smaller than last month.

After the data was released, the US dollar index declined by about 6 points in the short term to 104.41.

After the US PCE data was released, the probability that the Federal Reserve would stay on hold in May remained unchanged at 95.8%. According to the CME “Federal Reserve Watch”, the probability that the Fed will keep interest rates unchanged in the 5.25% to 5.50% range in May is 95.8%, and the probability of cutting interest rates by 25 basis points is 4.2%.

Both expenses and revenue rose, and the increase in expenditure once again surpassed the increase in revenue

Personal expenses and income all rose in February. As the main factor supporting consumption, personal income increased 0.2% month-on-month in February, down from the previous value of 1%.

Actual personal consumption expenditure adjusted for inflation was 0.4% month-on-month, higher than the previous value of -0.2%, and higher than everyone's expectations.

On a year-on-year basis, the increase in expenditure once again surpassed the increase in revenue, due to another sharp increase in government aid payments, which increased 39 billion US dollars over the previous month.

Has the “three-time interest rate cut plan” been stabilized?

After data such as CPI and PPI showed increased inflation, the Federal Reserve was relieved by the cooling of core PCE. Even so, Federal Reserve officials are looking for more evidence that inflation continues to fall, and they are in no hurry to cut interest rates.

Powell once emphasized the need for patience and said that the timing of the first rate cut would be “very important.” Prior to the next FOMC meeting on April 30, policymakers will receive another PCE report, as well as other reports such as CPI and PPI and non-farm payrolls.

Earlier, Mike Cornacchioli, senior vice president of investment strategy at Citizens Private Wealth Management, spent. Traders will evaluate whether Friday's inflation report will change the Fed's plan to cut interest rates three times in 2024.

Some analysts point out that PCE data may strengthen traders' bets on the Fed's interest rate cuts:

The interest rate cut currently expected by traders is lower than the 75 basis point rate cut predicted by the Federal Reserve in the March bitmap for 2024. Once the market reopens next week, tonight's PCE data may confirm these expectations, and may even push bets closer to the central bank's expectations