Thursday’s Gross Domestic Product (GDP) report carries troubling news for those monitoring inflation trends.
According to the Bureau of Economic Analysis, inflation surged at an annualized rate of 3.4% in the first quarter, marking a significant increase from the 1.8% recorded in the fourth quarter of 2023. This data incorporates inflation data from Personal Consumption Expenditures (PCE) for January and February, which have already been disclosed, with March’s data slated for release on Friday.
This development holds implications for the Federal Reserve’s preferred measure of inflation, the PCE. Economists note that the elevated quarterly figure suggests either a March acceleration in inflation or upward revisions to previous months’ figures.
Economist David Rosenberg, founder of Rosenberg Research and Associates, suggested on the social media platform X that PCE inflation for March could potentially see a 0.5% increase from February, surpassing the earlier consensus forecast of 0.3%. If realized, this would mark the highest monthly inflation rate since January 2023.
The prospect of escalating inflation adds complexity to the Federal Reserve‘s decision-making process. The heightened inflationary pressure could dissuade policymakers from considering interest rate cuts in the near future.
While the Federal Reserve had previously projected three rate cuts at their late March meeting, recent inflation reports indicating persistent price increases have prompted a reevaluation of this stance. Fed officials have been cautioning against premature rate cuts, with some suggesting that rate hikes may be necessary if inflation remains unchecked.
Such remarks have fueled skepticism among traders and economists regarding the likelihood of any rate cuts this year. Prior to Thursday’s GDP report, traders had placed an 87.4% probability of rate easing in December, according to the CME Group’s FedWatch tool. However, this figure dropped to 81.1% following the release of the report.
