March saw a rebound in inflation in the United States, as indicated by the PCE index. The data, released just before the next meeting of the bank, showed an acceleration in inflation to 2.7% year-on-year in March, up from 2.5% in February. This unexpected increase should prompt the central bank to proceed cautiously before considering any rate cuts.
Although inflation rose on an annual basis, monthly inflation remained stable at 0.3%. Core inflation, which excludes volatile prices of food and energy, also stayed steady, with a 0.3% increase on a quarterly basis and a 2.8% increase on a trend basis.
Household incomes recorded stronger growth in March compared to February while spending remained unchanged. This suggests that Americans are saving more money than usual due to concerns about rising prices.
The Federal Reserve aims to bring down the PCE inflation index to 2%, and the recent rebound in inflation may lead the Fed to maintain current interest rates at 5.25-5.50% for a longer period.
Fed Chair Jerome Powell noted that it may take longer than expected for inflation to return to the 2% target due to global supply chain disruptions caused by geopolitical tensions and other factors.
The job market remains strong in the US, with a low unemployment rate of 3.8% in March.
The Fed’s efforts to reduce inflation have been successful as economic growth slowed down significantly during the first quarter of the year. Analysts now expect the Fed to delay any rate cuts until September or November as they believe that the economy and employment continue showing resilience despite slowing down slightly.
Market observers will closely monitor any indications of the bank’s intentions during this week’s meeting. The recent slowdown in economic growth could influence their decision on when to adjust interest rates.
Acting too late could potentially harm both economy and employment levels; therefore, it is crucial for Federal Reserve Bank officials carefully consider their next steps before making any significant changes.
