Fed’s Rate Cut Hopes Dash as Inflation Report Shows 2.7% Annual Rate

Despite the Federal Reserve’s aim of keeping inflation at 2%, recent reports have shown an annual rate of 2.7%. This has led to speculation that rate cuts may not be likely in the near future. Deutsche Bank’s Jim Reid believes that the data does not provide enough momentum for the Fed to comfortably cut rates.

The Fed had previously walked back expectations for rate cuts due to better-than-expected data on jobs, consumer spending, and inflation. However, today’s report adds another layer of complexity to their decision-making process as they approach their next meeting. While the fed funds rate is expected to remain unchanged, the Fed’s communications after the meeting will be closely watched for any hints about their future plans.

In March, the Bureau of Economic Analysis’s Personal Consumption Expenditures (PCE) index increased by 0.3%, in line with expectations. However, the annual rate of inflation came in slightly higher at 2.7%, exceeding the Fed’s target rate of 2%. This marks a slight increase from January’s rate of 2.5%, which has raised concerns among market watchers.

Although there were worries that inflation would spike following yesterday’s GDP report, the PCE index did not show a significant jump. The slight increase in the annual rate from January to March is seen as a relief by those who were concerned about hidden inflation. It remains to be seen how the Fed will respond to this latest data in their upcoming meeting.

Overall, today’s report on inflation has added more uncertainty to the Fed’s decision-making process as they head into their next meeting. While they may not change the fed funds rate, their communications after the meeting will be closely watched for any hints about their future plans regarding inflation and interest rates.