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Instant View: US March PCE price index shows high, but cooling, inflation

Inflation hits consumer spending in Pennsylvania

NEW YORK (Reuters) - U.S. consumer spending was unchanged in March, while underlying inflation pressures remained strong, data from the Commerce Department showed Friday, which could see the Federal Reserve raising interest rates again next month.

Though inflation remains elevated, it is gradually slowing. The personal consumption expenditures (PCE) price index gained 0.1% in March after rising 0.3% in February. In the 12 months through March, the PCE price index increased 4.2% after climbing 5.1% in February.

MARKET REACTION:

STOCKS: S&P 500 futures extended slight losses and were down 0.3%, pointing to a soft opening on Wall Street

BONDS: The yield on 10-year Treasury notes slipped and was down 8.3 basis points at 3.445%; The two-year U.S. Treasury yield, fell and was down 6 basis points at 4.037%

FOREX: The Euro was off 0.39%, not much changed, and the dollar index was up 0.47%

COMMENTS:

TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK, NEW YORK

"The numbers were right in line with expectations, both the top line and the core, with no surprise either positive or negative. The topline was lower than the prior number."

"The core number is what the Fed really focuses on. In line with forecasts is good. Something lower would've been better. We can certainly look for the potential for revisions but for now in-line is good."

"Will the Fed raise rates at the May meeting. I don't think it'll influence them one way or another but we expect them to raise rates again. We think they signaled that pretty decisively. However they'll tell you they're data dependent so they'll look at these numbers."

"Regardless of whether they raise in May or not they're close to pausing and it’s in the cards for one of these future meetings. We think it’s just one more raise. That's what's what they've somewhat signaled. That's positive for the markets. We don't see them lowering rates for some time despite the bond markets anticipation."

QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA

"It came in within consensus estimates, but if you couple that with the employment cost index, it's not moving the equity futures market into the green. It suggests inflationary pressures remain stubborn... It puts the futures market in line for another rate hike in June if the pressures don't ease at a faster pace. And that's something the market does not want to see."

JOSEPH LAVORGNA, CHIEF U.S. ECONOMIST, SMBC NIKKO SECURITIES, NEW YORK

“This doesn’t change anything for me in terms of the trajectory of where these series are going, but the story is ECI being higher than expected with the upward revision. The trajectory in wages is still lower, but it’s not collapsing, at least not yet. You probably need a much bigger slowing in the growth rate to get the Fed comfortable that it’s succeeded in its mission, it’s not there yet.

“It doesn’t change the outlook (for policymakers next week). It doesn’t change any potential forward guidance because the Fed still doesn’t know to what extent this potential or looming credit crunch is going to have on the economy. It isn’t like we have a wholesale reevaluation of the inflation or wage outlook.

“There were no outliers, there’s nothing post data that changes any trajectory or initiates any even quasi reevaluation of the outlook. Nothing changed. I don’t think it’s going to impact the Fed much if at all. Powell is going to err on the side of being hawkish.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“Year-to-year the numbers are good and the report shows inflation continues to move in the right direction. I suspect this will be helpful for the Fed to make its decision, but I don’t think we escape another 25 basis point rate hike at their next meeting.”

“Today’s numbers indicate what the trend has been, which is lower inflation. It’s still high but it’s something that the Fed needs to take into consideration.”

“The consumer is cutting back and disposable income has been eliminated. The economy has weakened substantially and there’s a possibility that we’re already in a light recession. So the Fed will probably signal that we’re nearing the end of the tightening cycle.”

JOE MANIMBO, SENIOR MARKET ANALYST, CONVERA, WASHINGTON, DC

“It’s another mixed bag of data, but what stands out is the frustratingly slow descent in core inflation. So, the dollar’s benefiting from elevated core inflation, which I think is leading the market to rethink the outlook for rate cuts later this year and I think it sets the stage for the Fed to reiterate that interest rates are likely to remain higher for longer.”

“I would say on balance, core inflation remaining elevated, that suggests that if the Fed does pause after May that the next move in rates could indeed be higher. Whether or not it’s the summer, whether or not it’s the fall, if we continue to see inflation making only a gradual descent that could give the Fed cover to restart rate increases.”

(Compiled by the Global Finance & Markets Breaking News team)