Bonds & Stocks
Wall Street traders fearing another hot inflation report got a degree of relief after the Federal Reserve’s favored inflation gauge was on spot with estimates. Stocks and bonds erased losses after the core personal consumption expenditures gauge added to speculation the central bank will still be able to lower rates this year. That’s after a recent jump in consumer and producer prices made traders dial back their Fed-cut wagers. While the PCE is still well above the central bank’s 2% target — giving credence to Fed’s “wait-and-see” approach — Thursday’s data helped allay concerns about a more significant reacceleration in prices.
Economy
The Federal Reserve’s preferred gauge of underlying inflation rose in January at the fastest pace in nearly a year, helping explain policymakers’ patient approach to start cutting interest rates.The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.4% from December, data out Thursday showed. From a year ago, it advanced 2.8%. Economists consider this to be a better gauge of underlying inflation than the overall index. Inflation-adjusted consumer spending dropped for the first time in five months after a robust holiday shopping season, according to the report from the Bureau of Economic Analysis. Real disposable income, the main supporter of spending, was little changed.
World
The global economy has a growing chance of pulling off a soft landing, finance chiefs said in a draft of the G-20’s closing statement at this week’s meeting in Brazil, citing faster-than-expected disinflation as one of the upside risks. “We note that the likelihood of a soft landing in the global economy has increased,” said the draft communique dated Feb. 23, seen by Bloomberg News. “Risks to the global economic outlook are more balanced. Upside risks include faster-than expected disinflation.”