The US Bureau of Labor released its latest data on February PCE inflation rates, indicating an increase in both core and headline inflation. Core PCE inflation rose by 0.3% month-over-month and 2.8% year-over-year, suggesting a gradual disinflationary trend. Similarly, headline PCE inflation also saw a 0.3% increase month-over-month and a 2.5% increase year-over-year, albeit slightly below expectations.
Notably, the January PCE inflation readings were revised, with core PCE inflation adjusted higher to 0.5% month-over-month. Despite the recent inflation spike, the Federal Reserve considers it a temporary occurrence on the path to reach the 2% inflation target. The Fed remains committed to cutting interest rates three times in 2024.
The latest PCE report confirms the buildup of inflationary pressures, particularly in durable goods prices and service inflation fueled by a robust labor market. However, the Fed is awaiting further evidence of sustainable inflation before contemplating interest rate adjustments, especially with concerns of a possible recession on the horizon.
Looking ahead, the upcoming CPI report for March will serve as a vital indicator for potential corrections in the S&P500. Current recommendations advise investors to retain their investments until additional data becomes available. Stay tuned for further developments on ‘Poh Diaries’ for insights on the evolving economic landscape.
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