The Federal Reserve's preferred inflation indicator is as expected! The market breathes a sigh of relief
The year-on-year core PCE price index in the United States for January is 2.6%, in line with expectations, marking a new low since June 2024. Both the overall PCE year-on-year and month-on-month rates are within market expectations. Personal spending month-on-month recorded -0.2%, the largest decline since February 2021, ending the growth trend. After the PCE data was released, the market reacted calmly, with little fluctuation in spot gold and the US dollar index. Federal Reserve officials stated that meaningful relief in inflation needs to be observed, and the decline in spending may raise concerns about economic resilience
After a series of reports showed renewed price pressures and consumers cutting back on spending, the Federal Reserve's preferred inflation indicator cooled slightly in January, providing some relief.
The U.S. core PCE price index for January recorded a year-on-year increase of 2.6%, in line with expectations, marking the lowest level since June 2024, with the previous value revised from 2.8% to 2.9%; the month-on-month core PCE price index for January recorded an increase of 0.3%, also consistent with expectations, reaching the highest level since October 2024, with the previous value at 0.2%. The overall PCE year-on-year and month-on-month rates were also within market expectations.
Additionally, U.S. personal spending for January recorded a month-on-month decrease of -0.2%, below the expected 0.1%, marking the largest decline since February 2021, ending the growth trend that began in March 2023, with the previous value revised from 0.70% to 0.8%. This was due to extreme winter weather following a strong holiday shopping season.
After the PCE data was released, spot gold and the U.S. dollar index showed little short-term volatility. U.S. Treasury yields narrowed their declines, with the 10-year Treasury yield falling by 1.6 basis points to 4.271%.
Friday's PCE report provided some relief regarding inflation, following other price reports that indicated not only stagnation in inflation progress but also a reversal. Federal Reserve officials stated that they need to see meaningful relief in inflation before they consider cutting rates again, especially given the uncertainty regarding how Trump’s policies will affect prices.
Meanwhile, the significant drop in spending may raise concerns about the resilience of the U.S. economy.
Continuously updating