Fed inflation gauge holds steady in February, but spending rate leaps

The Federal Reserve's preferred inflation gauge held steady last month but offered a mixed picture of spending and price pressures that could further complicate the central bank's interest rate forecasting. 

The Bureau of Economic Analysis' PCE Price Index, reported Friday, showed core prices held at 2.8% last month, matching Wall Street's forecast of 2.8% and the January reading. The pace of increase was the slowest since March 2021.

On a monthly basis, core pressures were up 0.3%, a modestly slower pace compared with January's 0.4% gain. The figure also matched Wall Street's consensus estimate.

Markets often key on the bureau's core PCE price index, which the Fed considers a more accurate representation of consumer-price pressures since it blends changes in spending patterns.

The headline index, meanwhile, quickened to an annual rate of 2.5%, matching Wall Street's forecast and rising from the 2.4% pace in January. Prices rose 0.3% on the month, the BEA said, following a 0.4% gain in January. 

The BEA also noted that personal incomes for the month of February rose 0.3%, perhaps reflecting some softness in the labor market, while spending quickened from January to rise 0.8%.

Earlier this week, Fed Gov. Christopher Waller told an event at the New York Economic Club that "there is no rush to cut the policy rate" given elevated inflation.

"It is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data," Waller added, citing the first two months of growth and inflation figures.

More economy:

• Retail sales leap, testing Fed rate-cut bets
• Bond markets’ reaction to key data could be great for stocks
• Wall Street

The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.05% lower from yesterday's levels at 104.51.

CME Group's FedWatch tool suggests the market is expecting no change from the Federal Reserve on rates when its two-day May policy meeting ends. 

Bets that the Fed starts cutting rates in June, however, are holding at around 61%, with markets anticipating two more cuts by the end of the year.