Federal Reserve’s Preferred Gauge Indicates Lowest Inflation Levels Since 2021
- Category: News
The moves coincided with recent commentary from Fed officials that investors deciphered to mean the central bank could cut interest rates sooner than many had initially thought.
“I’m sensing greater clarity about a few important currents. One is the direction of inflation. There’s no question the rate of inflation has slowed materially over the past year-plus,” Atlanta Fed president Raphael Bostic wrote in an essay published Wednesday.
As of Thursday morning, markets were pricing in a 74% chance of an interest rate cut by the end of the Fed’s May meeting. A month ago, markets had priced just a 38% chance of a cut in the same time period, per the CME FedWatch Tool.
Market Rates in June
Markets priced in a 92% chance of a rate cut by June, up from a 60% chance a month ago. Thursday’s PCE release falls in line with what investors already digested earlier this month from another popular inflation gauge, the Consumer Price Index (CPI). On Nov. 14, the CPI print showed headline inflation declining at its lowest pace since September 2021.
The recent market shifts align with recent statements from Federal Reserve officials that investors interpreted as indicating a potential earlier-than-expected interest rate cut by the central bank.
In an essay published on Wednesday, Atlanta Fed president Raphael Bostic expressed a growing sense of clarity regarding key factors, including the direction of inflation. He acknowledged a significant slowdown in the rate of inflation over the past year-plus.
Fed’s favorite gauge shows inflation rose 0.2% in October and 3.5% from a year ago, as expected
Interest Rate Cuts:
As of Thursday morning, markets were indicating a 74% probability of an interest rate cut by the end of the Fed’s May meeting. This represents a notable increase from a month ago when markets priced in just a 38% chance of a cut within the same timeframe, according to the CME FedWatch Tool. The probability of a rate cut by June also surged to 92%, up from a 60% chance observed a month ago.
The release of the PCE data on Thursday aligns with information previously absorbed by investors earlier in the month from another widely followed inflation metric, the Consumer Price Index (CPI). The CPI print on Nov. 14 revealed that headline inflation was declining at its slowest pace since September 2021.
These market movements have unfolded amid a shifting landscape shaped by recent statements from Federal Reserve officials, suggesting a potential recalibration of interest rates sooner than previously anticipated. Atlanta Fed President Raphael Bostic’s observations, emphasizing the substantial slowdown in inflation over the past year-plus, have contributed to investors reassessing their expectations.
