PCE: Inflation rises as Fed signals delay in cutting US interest rates

Data adds to dimming hopes of rate cuts in the US, UAE, Saudi Arabia and other countries

Federal Reserve Chair Jerome Powell has said he expects a delay in cutting US interest rates because of recent stubborn inflation data. Reuters

US inflation rose higher than anticipated last month, dealing another setback for the Federal Reserve's ambitions of a soft landing.

The Personal Consumption Expenditures (PCE) Price Index 0.7 per cent per cent last month, the Commerce Department reported on Friday. On an annual basis, headline inflation rose 2.7 per cent.

Core PCE, which excludes food and energy, rose 2.8 per cent annually, unchanged from February but above economists' expectations.

With evidence mounting that progress in taming inflation has stalled, the argument for the Fed to cut interest rates is becoming increasingly frayed.

Markets now expect the Fed to cut rates by only 25 basis points this year, according to CME's FedWatch tool. That would bring the Fed's target range down to 5 and 5.25 per cent.

Any delay to cut US interest rates would also signal a delay in rate cuts in the UAE, Saudi Arabia and other GCC countries.

It would also likely see the continued strengthening of the US dollar, which would make it more difficult to engage in global trade. Emerging markets could be hit especially hard.

Even before the report's release, markets were already bracing for a disappointing reading.

PCE inflation rose 3.4 per cent over the first three months this year, a steep increase from the 1.8 per cent increase the Commerce Department reported in the final quarter last year. Core PCE rose 3.7 per cent this quarter, up from 2.0 per cent.

Federal Reserve Chair Jerome Powell last week said March's inflation numbers would be similar to February, which came in at 2.8 per cent.

“The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence,” he said on he sidelines of the Spring Meetings in Washington.

Those comments were enough to prompt New York Fed president John Williams to walk back his optimistic viewpoint on rate cuts this year, changing his language to say the central bank was in “no rush” to dial back on its restrictive stance.

The Fed is now in its quiet period until its monetary policy meeting next week.