On Friday, stocks sold-off as the Federal Reserve\’s preferred measure of inflation rose more than expected in January. The personal consumption expenditures (PCE) price index increased 0.6 percent month on month, causing the annual rate to increase to 5.4 percent in January. The core PCE index, which strips out volatile food and energy costs, rose 0.6 percent in January, up from 0.4 percent in December. The annual rate increased to 4.7 percent from an upwardly revised figure of 4.6 percent in December, missing economists\’ expectations for a moderation to 4.3 percent.
Investors adjusted their interest rate expectations following the data release, pricing in a 39 percent chance of a half-point rate rise at the Fed\’s March meeting, compared with an 18 percent likelihood a week ago. Loretta Mester, president of the Cleveland Federal Reserve, said the Fed should lean towards pushing interest rates higher to get inflation back down to the central bank\’s 2 percent target. US President Joe Biden said the data showed that \”we have made progress on inflation, but we have more work to do\”.
Stocks were under pressure on Friday as investors adjusted their interest rate expectations and bonds fell and yields moved higher. The S&P 500 closed 1.1 percent lower on the day, taking the blue-chip index\’s loss for the week to 2.7 percent, the biggest weekly drop since December. The PCE data showed that personal income growth quickened to 0.6 percent in January from 0.3 percent in December, but below economists\’ expectations for a 1 percent increase. The personal savings rate increased to 4.7 percent in January, from 4.5 percent in the previous month.
The latest inflation data has caused a Wall Street sell-off as investors weigh the prospect of interest rates staying higher for longer as the Federal Reserve fights stubborn price pressures. The data also showed that personal income growth quickened in January and the personal savings rate increased, but was still below economists\’ expectations. Fed Chair Jay Powell warned earlier this month that taming inflation would take a “significant period of time”.
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