The latest data shows that the US economy slowed in the first three months of this year. But what worries investors even more is that inflation is accelerating faster than Wall Street expected, which shocked the market on Thursday. According to the latest data from the US Bureau of Economic Analysis (Bureau of Economic Analysis), the “core” personal consumption expenditure (PCE) index excluding highly volatile food and energy categories increased 3.7% year-on-year in the first quarter, higher than expectations of 3.4%, which is significantly higher than the 2% increase in the previous quarter.

This is the first time in a year that the inflation index preferred by the Federal Reserve has risen quarterly, highlighting concerns that the Fed may not cut interest rates as quickly as expected.

Market losses stemming from Meta's disappointing earnings on Wednesday accelerated after the Bank of East Asia report was released. The three major stock indexes all fell by more than 1% in midday trading, while bond yields soared. The recent 10-year US Treasury yield, which is bad for the stock market, rose slightly, breaking 4.7% for the first time since early November.

Brett Ryan (Brett Ryan), a senior American economist at Deutsche Bank (Deutsche Bank), said: “The part (released on Thursday) that is a bit of a headache for the Federal Reserve and the market is core personal consumption expenditure, that is, inflation data.” “From the perspective of the Federal Reserve, this is really troublesome, and it is also the reason why the market reaction is very negative, because it really puts the Fed in an embarrassing situation, and you are beginning to question whether they can cut interest rates this year.”

He added that the data could have an impact on another inflation report scheduled to be released on Friday. Ryan pointed out that the quarterly price increase data released on Thursday indicates that either the March personal consumption expenditure (PCE) data will be hotter than expected, or the revised data will show that inflation in January and February is actually higher than previously anticipated. None of this bodes well for the prospects of interest rate cuts.

Expectations for the Federal Reserve to cut interest rates declined further on Thursday. Since this year, the Federal Reserve's interest rate cuts have declined sharply from a peak of nearly 7 times in early January. According to the data, the market currently expects to cut interest rates only once this year.

The key to this move is that it has rewritten popular expectations for inflation this year.

“Predictors think, 'Mission Accomplished'. Instead, we now have a red warning sign,” economist Jason Furman (Jason Furman) told Yahoo Finance (Yahoo Finance). He has chaired President Obama's Council of Economic Advisers (Council of Economic Advisers).

He added: “The Federal Reserve cannot feel secure enough about inflation at any time this year, so it will not cut interest rates, probably in December, or not.” The only thing that will allow the Federal Reserve to cut interest rates in the near future is that the job market is deteriorating much faster than I expected.”

Federal Reserve Chairman Jerome Powell recently reiterated that the Federal Reserve will not cut interest rates until there is “greater confidence” in falling inflation.

Powell said on April 16: “The recent data clearly did not give us more confidence; on the contrary, it suggests that it may take longer than expected to achieve this confidence.”

In other data released on Thursday, economic growth in the second quarter fell short of expectations. The US gross domestic product (GDP) estimate for the first quarter shows that the economy grew at an annualized rate of 1.6% during this period. The economists surveyed estimate that the US economy grew at an annualized rate of 2.5% during this period.

Economists pointed out that a large part of the economic slowdown comes from fluctuating categories likely to rebound next quarter, making the rise in inflation the most critical part of Thursday's economic data.

“In terms of real GDP and real growth, there's almost nothing to worry about,” Furman said. “There's a lot to worry about when it comes to inflation.”

Many strategists believe that even if the Federal Reserve does not cut interest rates this year, the market is likely to continue to rise. However, in the short term, weakening expectations of interest rate cuts have boosted bond yields. In the current market dynamics, rising bond yields are not a welcome sign for the stock market.

Michael Kantrowitz, chief investment strategist at Piper Sandler, said: “We now live in a stock market driven by bonds.

As for now, the upcoming inflation data will not help much in this regard.