The Federal Reserve’s key inflation rate reared up in the first quarter, as U.S. GDP growth slowed more than expected, the Commerce Department reported Thursday. After the data, which supports a slower road to Fed rate cuts, S&P 500 futures extended early losses.
decisions on interest rates impact both the economy and the stock market. IBD News Editor Ed Carson shares how reactions by each can differ and what investors need to know.” vid-name=”Fed Interest Rate Decisions: Market Influence And Investor Psychology Impact Of Cuts And Hikes” vid-cat=”Industry Insights” vid-date=”03/20/2024″ vid-date-tmsp=”1710938202″ vid-image=”https://www.investors.com/wp-content/uploads/2024/03/cReAVOpP-640×360.jpg” vid-authors=”MEREDITH HEYMAN”>
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Primary Fed Inflation Rate
The Federal Reserve’s primary inflation gauge, the core PCE (personal consumption expenditures) price index, rose at a 3.7% annual rate in Q4, above 3.4% expectations. That followed back-to-back quarters of tame 2% annualized inflation, right at the Fed’s target.
The headline PCE price index, which includes food and energy prices, rose 3.4% in Q1, up from 1.8% in Q4.
The hot quarterly core PCE inflation data provides a preview of Friday’s big inflation report, which will break out monthly increases in the core PCE price index. Wall Street was expecting a 0.3% increase in March, putting the annual core PCE inflation rate at 2.7%.
However, the 3.7% quarterly increase implies a hotter reading for March and possibly upward revisions to data for January and February.
GDP Growth
The U.S. economy grew 1.6% in Q1, missing forecasts of 2.3% growth, and well below from Q4’s 3.4% pace.
Personal consumption expenditures grew a solid 2.5%, though a touch below 2.8% estimates. That came as goods consumption was flat, while spending on services rose 4%.
However, net exports of goods and services subtracted 0.86 percentage point from GDP, due to a flood of imports. Government’s contribution to GDP growth also slowed to two-tenths of a percentage point from a range of 0.5% to 1% over the prior six quarters.
This story is being updated. Please check back for more data and analysis.
Federal Reserve Rate-Cut Odds
After of Thursday’s data, markets were pricing in 39% odds of a quarter-point Federal Reserve rate cut by the July 31 meeting, down from 44% ahead of the GDP report. Odds of a cut by Sept. 18. fell to 63% from 70%.
Markets are pricing in a year-end Fed funds rate of 5%, up from 4.96% before the GDP report. That builds in 54% odds of no more than one quarter-point rate cut this year.
S&P 500
After the GDP release, S&P 500 futures fell 1.%2 in early Thursday stock market action. The S&P 500 is trying to rise for a fourth straight session after clawing out the slimmest of gains on Wednesday left it 1% below the key 50-day moving average.
The 10-year Treasury yield climbed 8 basis points to 4.73%, the highest since early November.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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