PCE Price Index Rises for January
One of the Federal Reserve’s most watched gauges, the personal consumption expenditures price index, just saw a larger-than-expected rise for the month of January. This sent markets falling on Friday, finishing the week off as the worst for markets throughout 2023. Following several hotter-than-expected economic reports for January such as the year-over-year CPI, retail sales, and PPI, the newly released PCE index helps judge inflationary pressures on the American consumer. It specifically measures the price at which American citizens pay for goods and services; this monthly data point, which several experts believe is closely followed by the Fed, climbed 0.6% in January when compared to December, being up 4.7% year-over-year. The core PCE price index, which excludes food and energy prices, similarly rose by 0.6%. Accordingly, personal spending rose 1.1% in the month, the largest monthly increase since March of 2021.
After several synchronized economic reports, several now believe the Fed may continue to pursue their aggressive tightening cycle to limit this persistence in inflation. After a 25-basis-point hike in January, Fed Chair Jerome Powell took a dovish stance, hinting at a pause that could come as soon as after the next meeting on March 21st. Now, with 53-year low unemployment levels and the resurgence of prices, several investors would like some additional guidance on if the Fed will keep this same plan, or if the inverse will become true. Other prominent voices include St. Louis Fed President James Bullard, which believes a “soft landing” is still feasible so long more rate hikes ensue. Bullard advocates for a top benchmark rate of 5.4%, currently 65 basis points over the present top federal funds rate of 4.75%. Regardless, markets have continued to price lower with worries the Federal Reserve’s action’s may continue to cripple company’s margins.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.