The United States saw a rebound in inflation in March, according to the PCE index, a crucial indicator for the US central bank. Inflation increased to 2.7% year-on-year from 2.5% in February, a surprise move that could prompt the Fed to proceed with caution before considering any rate cuts. Analysts had forecasted a more modest figure of 2.6%.
Despite this rise on an annual basis, monthly inflation remained stable at 0.3%, while core inflation also stayed steady with a 0.3% increase on a quarterly basis and a 2.8% increase on a trend basis. Household incomes recorded stronger growth in March compared to February, but spending remained unchanged.
The Federal Reserve aims to bring down the PCE inflation index to 2%, and the recent rebound could lead it to maintain current interest rates at 5.25-5.50% for longer periods, as it seeks to prevent further price increases. Fed Chair Jerome Powell has stated that it may take longer than expected for inflation to return to the target of 2%.
While the job market remains strong in the US, with an unemployment rate of just 3.8% in March, economic growth slowed down in the first quarter of the year due to rising costs and uncertainty around trade policies. As such, analysts expect the Fed to delay any rate cuts until September or November as they continue closely monitoring economic growth and employment levels’ resilience.
As markets closely monitor any indications of what actions will be taken by the Federal Reserve during its upcoming meeting this week, there is concern about how slowing economic growth might impact their decision on adjusting interest rates.
Acting too late could potentially harm both economic growth and employment levels, making it crucial for the Fed carefully consider its next steps towards achieving its long-term goals while maintaining balance between keeping inflation under control and fostering sustained economic growth for American consumers and businesses alike.
