FxPro Analysis: The Fed's Favorite Indicator Confirms Inflation Trend is Slowing Down


FxPro Analysis: The Fed's Favorite Indicator Confirms Inflation Trend is Slowing Down

Last Friday's market focus was on US household income and expenditure data, as well as the Personal Consumption Expenditures (PCE) index, the Federal Reserve's preferred inflation gauge.

FxPro senior analyst Alex Kuptsikevich noted: The core PCE price index rose 0.3% year-on-year and 2.8%, matching average expectations, but below the previous month's 0.5% and 2.8%. The Federal Reserve is under pressure, as official CPI data in recent months has not fostered an atmosphere of imminent policy easing. Some observers have already begun to hint that the Federal Open Market Committee (FOMC) may not cut interest rates before the end of this year.


Last Friday's data may support expectations for a rate cut in June. The shift in interest rate expectations from a 64% chance of a cut in June to 100% could be unfavorable for the dollar.

In February, personal spending grew by 0.8%, an increase from the previous month's 0.2% and above the expectation of 0.5%. Income rose by 0.3% in February, but had grown by 1% in January. Spending kept pace with income, which is beneficial for the market, as high spending is favorable for earnings.


The savings rate in February fell to 3.6%, the lowest level since December 2022, and has been on a downward trend since the middle of last year.


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Inflation refers to the phenomenon where the purchasing power of a country's (or region's) currency decreases, leading to a general rise in the prices of goods and services. It is reflected in the fact that, over a certain period, the same amount of money can only buy fewer goods and services.


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