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U.S. inflation rose to 2.7% in the year to March, another sign that price pressures remain high and could complicate the Federal Reserve's plans to cut interest rates this year. ing.
Friday's data on personal consumption spending, the Fed's preferred measure of inflation, beat economists' expectations for a slight increase to 2.6% from 2.5% in February.
U.S. mortgage and other borrowing costs are expected to remain high ahead of the November presidential election, and the unexpected rise could increase traders' doubts that the Fed will cut interest rates this summer. is high.
“Inflation is becoming stronger, more persistent and more widespread,” said Diane Swonk, chief economist at KPMG US. “These are three things the Fed doesn't want.”
The numbers were released a day after data showed that U.S. economic growth in the first quarter was significantly slower than expected, but inflation in the quarter remained above the Fed's 2% target and stocks This caused the market to fall and the price of government bonds to soar. Yields rose as traders reduced bets on interest rate cuts.
On Friday, the market reversed some of those moves, with the S&P 500 index rising 1.1%. The tech-heavy Nasdaq Composite Index rose 2.3%, helped by a big rise in Google's parent company Alphabet..
Movements in the government bond market were more moderate, with the yield on the policy-sensitive two-year bond almost unchanged at 5%, and the yield on the benchmark 10-year bond fell 0.04 percentage points to 4.67%. As prices rise, yields fall.
The rise in inflation in March was mainly due to soaring gasoline prices due to rising crude oil prices due to the tense situation in the Middle East. Freya Beamish, an economist at TS Lombard, said further inflation in energy costs would pose a risk of “cyclical stagnation” to the otherwise strong U.S. economy.
“If the price of oil rises to $100, [per barrel]Primarily for supply-side reasons, this could coincide with an already planned upheaval in the U.S. labor market,” Beamish wrote in a note. Brent crude oil futures were trading at about $89.50 per barrel on Friday, up about 18% since the beginning of the year.
Core PCE, which excludes volatile food and fuel prices, was expected to decline to 2.7%, but remained at 2.8% in March.
The latest economic data comes as a blow to US President Joe Biden, who is banking on continued strength in the US economy and job market, as well as the continued strength of the US economy and job market, as well as inflation reaching multi-decade highs in 2022. It has emphasized a steady decline.
Reacting to the data, White House National Economic Council Chairman Lael Brainard said, “Inflation is down more than 60% from its peak, but today's report highlights our continued efforts to reduce costs.” “This shows once again the importance of these efforts.”
He said the Biden administration has taken steps to lower the cost of prescription drugs, stop big companies from charging customers excessive fees and expand housing supply.
But Biden himself recently said he expects the Fed to start lowering rates this summer.
“Inflation in the U.S. has really spiked over the last three months, hitting the Fed in the face,” said Ajay Rajadhyaksha, chairman of global research at Barclays.
Futures traders are currently only fully pricing in the first quarter-point rate cut by the Fed on Nov. 6-7, right after the presidential election.
U.S. borrowing costs are at a 23-year high, while the PCE index has been above the central bank's 2% target since March 2021.
“Inflation will probably continue from here,” said Tim Murray, multi-asset strategist at T. Rowe Price. He argued that demand for chips, semiconductor materials for artificial intelligence, clean energy and other products were fueling price pressures.
“This news is not good,” he added. “When you look at things on a year-over-year basis, almost every angle you look at it looks like the trend is flat to slightly up.”
Additional reporting by James Politi in Washington