Despite the rate hikes over the past 2 years, the Fed continues to struggle to get inflation down to their yearly target of 2%. A key inflation index for March shows that inflation continues to run well above expectations.
The personal consumption expenditures price index excluding food and energy increased 2.8% from a year ago in March, the same as in February, the Commerce Department reported Friday, and above the 2.7% estimate from the Dow Jones consensus.
For the quarter, the personal consumption expenditures price index rose by 3.4% compared to the first quarter of last year, showing it’s biggest gain in a year and up significantly from 1.8% in the fourth quarter.
“Inflation reports released this morning were not as a hot as feared, but investors should not get overly anchored to the idea that inflation has been completely cured and the Fed will be cutting interest rates in the near-term,” George Mateyo, chief investment officer at Key Wealth, said, “The prospects of rate cuts remain, but they are not assured, and the Fed will likely need weakness in the labor market before they have the confidence to cut.”
Jeffrey Roach, chief economist at LPL Financial, warned this week that the economy will likely continue to decelerate due to falling saving rates.
“The economy will likely decelerate further in the following quarters as consumers are likely near the end of their spending splurge,” Jeffrey Roach said. “Savings rates are falling as sticky inflation puts greater pressure on the consumer. We should expect inflation will ease throughout this year as aggregate demand slows, although the path to the Fed’s 2% target still looks a long ways off.”
Consumer spending rose by .8% in March despite rising prices, and higher than the .7% increase in February.