A round of U.S. inflation data is putting to rest any lingering hopes that the Federal Reserve could soon end or at least suspend its continued rate hikes.
A fresh round of data on U.S. inflation upended financial markets on Friday, putting to rest any lingering hopes that the Federal Reserve could soon end or at least suspend its continued rate hikes.One of the biggest reasons for the reaction is that Friday’s data was based on the Fed’s own preferred gauge of inflation, known as the PCE or personal-consumption expenditures price index, which captures changes in the prices of goods and services purchased by consumers.
Traders briefly boosted the chances of a half-point-rate hike in March, to as much as 42% on Friday from 27% a day ago, and pushed Treasury yields higher across the board amid an aggressive bond selloff. All three major U.S. stock indexes SPX DJIA COMP were sharply lower in afternoon trading, and the ICE U.S. Dollar Index DXY was on pace at one point for its best week since September.Momentum in the PCE’s core reading, which rose by 0.6% last month and by 4.
January’s blowout U.S. jobs report, released on Feb. 3, nudged up expectations around the world for how high major central banks are likely to take rates, and moved the needle on many people’s thinking about how persistent inflation is likely to remain. That report was then followed by an update on consumer prices that fanned inflation fears, and a surprisingly strong retail sales report.
The risk that U.S. interest rates could rise above 5% by March, the highest level since 2006, gained some traction after Friday’s data. Remarks by at least one other Fed official on Friday, though, only underscored lingering worries about higher-for-longer interest rates: Fed Gov. Philip Jefferson said high inflation may come down “only slowly.”
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