Federal Reserve's Crucial Inflation Indicator Dashes Hopes for Rate Cuts as S&P 500 Surges

The core PCE price index, a key Federal Reserve inflation measure, indicated a rise in price pressures in January, aligning with expectations but keeping the possibility of a June rate cut alive.

Despite the inflation uptick, the S&P 500 experienced a modest increase following the release of inflation data.

Core inflation, which excludes volatile food and energy prices, rose by 0.4% in January, meeting projections. The 12-month core inflation rate eased slightly to 2.8% from December's 2.9%..

Goods prices declined by 0.2% in January, while services prices saw a 0.6% increase.

The unrounded core inflation figure for January showed a slightly higher increase, with a 0.42% rise on the month and an annual increase of 2.849%.

The Fed's primary core inflation rate accelerated to 2.6% on a three-month annualized basis and to 2.5% on a six-month annualized basis.

Federal Reserve Chair Jerome Powell emphasized the need for six months of stable inflation data to confirm the trend, amidst concerns that the recent inflation spike might be temporary.

Economists attributed the January price surge to customary adjustments at the beginning of the year, with January typically experiencing higher price gains due to pricing updates by companies.

The Fed began focusing on core PCE services excluding housing, termed supercore services, to address persistent inflation driven by tight labor markets and elevated wage growth.

Despite robust personal income growth and mixed spending patterns, jobless claims rose slightly, potentially signaling a weakening labor market.

And increasing speculation about a Fed rate cut, with market odds of a cut by June rising to 66%.