April PCE inflation not too hot, or cool

(Reuters) - U.S. inflation tracked sideways in April, a worrying sign for the U.S. central bank that suggests the elevated pace of price increases could last longer than expected and casts doubt on how soon it will be able to cut interest rates.

The personal consumption expenditures (PCE) price index increased 0.3% last month, the Commerce Department said on Friday, matching the unrevised gain in March.

The PCE price index rose 2.7% year on year, after advancing 2.7% in March. Economists polled by Reuters had forecast it would climb 0.3% on the month and 2.7% on a year-on-year basis.

Core PCE subtracting food and energy prices, rose 0.2% month to month, less than the forecast repeat of March's 0.3% rise. In the 12 months to April the core index rose 2.8%, the same as expected and as last month's rise.

MARKET REACTION:

STOCKS: U.S. stock futures turned 0.26% higher, pointing to a positive opening on Wall Street

BONDS: U.S. Treasury 10-year yield slipped to 4.506% and the two-year yield fell to 4.908%

FOREX: The dollar index extended a slight loss to -0.33%, while the euro extended to a 0.41% gain

COMMENTS:

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NORTH CAROLINA (emailed note)

"This week’s most important economic data came and went without deviating much from expectations. The inflation data was the most anticipated and that came in right in line with consensus, but the spending numbers were a little less than expected.

"The market has spent this year worried about inflation and there was a sigh of relief this morning when it wasn’t higher than expected and there may even be some good news in the report to the extent that a slowing in consumer spending could portend lower inflation numbers.

"We are in a be-careful-what-you-wish-for moment because if slowing consumer spending leads to lower inflation and the Fed is able to cut slowly as a result then that will be good for markets, however, if consumer spending – and the economy – slows too quickly then corporate profits and stock prices will go down much more quickly than the Fed will be able to cut rates, so we would be careful at this point."

MICHAEL LORIZIO, SENIOR FIXED INCOME TRADER, MANULIFE INVESTMENT MANAGEMENT, BOSTON

“This is one of the rare instances where all of the modeling and all of the forecasting really nailed where the actual measured data ended up coming.”

“This is basically exactly what the Fed has detailed. This is a favorable report showing that core is slowing and perhaps some of that seasonality that they have identified that has come in the first quarter of the year is coming off, and now we’re resuming the slowing that we saw in the second half of last year.”

“This has all shown continued progress towards what they have identified as their expectations for the end of 2024, seeing core PCE somewhere in that 2.6% - 2.7% range. This month shows some significant progress and really, really a change from the trend that we had seen to begin the year in that first quarter, which displayed the seasonality that often does show up in the first quarter.”

JOSEPH TREVISANI, SENIOR ANALYST, FX STREET, NEW YORK, NEW YORK

“The longer you get the market inflation lingering close to 3%, the harder it is for the Fed to make a case for cutting rates. Certainly there's nothing in these numbers that advances the Fed's rate cutting idea.”

“These numbers do not give any sense that the Fed is achieving its goal. It's already stated what its goal is, so the markets are willing to give it some time -- three months, four months, five months -- but that time I do not think is unlimited. And if you end up with a few more months of steady state inflation of 2.8%, 2.7% on the PCE and well above 3% on the CPI, the Fed's case for cutting rates is going to completely fall apart, and the markets are going to have to recognize that.”

ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NEW YORK

“This is a market positive report. It appears that both the headline and core numbers came in very much in line with expectations. The good news is, it’s not worse. And that's exactly what we need with inflation data right now. ”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“Incomes and spending were both slightly weaker than expected. Inflation adjusted disposable personal income has been flat-lining since February. The Fed can't be singularly focused on inflation anymore. Consumers went from spending like there's no tomorrow to pinching pennies pretty quickly.”

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