Fed’s Preferred Inflation Gauge PCE up 5.4% year over year and core up 4%

The Federal Reserve’s preferred inflation gauges unexpectedly accelerated in January and consumer spending surged after a year-end slump, adding pressure on policymakers to keep ratcheting up interest rates.The personal consumption expenditures price index rose 5.4% from a year earlier and the core metric was up 4.7%, both marking pickups after several months of declines. Consumer spending, adjusted for prices, jumped 1.1% from the prior month, the most in nearly two years, after consecutive declines. US stock futures fell and Treasury yields rose as traders firmed up bets that the Fed will raise interest rates by a quarter-point at each of the next three meetings. Investors also expect a higher terminal fed funds rate.

The resilient spending and stubborn inflation suggest that the Fed’s path to taming prices and demand will be bumpier and longer than data for late 2022 had previously indicated. While that could bolster policymakers’ resolve to raise borrowing costs higher than anticipated and keep them there for longer, it may increase risks of a recession. The PCE price index increased 0.6% from a month earlier, the most since June, Commerce Department data showed Friday. Excluding food and energy, the core PCE price index also climbed 0.6%. Both advances exceeded projections. Fed’s Preferred Inflation Gauge PCE up 5.4% year over year and core up 4%. NN:This was not suppose to happen. According to Wall Street the Fed was done. WRONG WRONG WRONG!! You got another year of FED tightening. And they will have to get FED FUNDS to over 6%.