The Fed's fundamental inflation indicator rose 2.8% yearly, as anticipated

Inflation rose as expected in February, likely putting the Federal Reserve on hold before it can begin considering rate cuts, according to a measure the central bank considers its more important barometer.

The price index of personal consumption expenditures excluding food and energy rose 2.8% on a 12-month basis, up 0.3% from a month ago, the Commerce Department reported Friday. Both figures were in line with Dow Jones estimates.

Taking into account fluctuating food and energy costs, overall PCE showed an increase of 0.3% for the month and 2.5% for the 12-month rate, compared with estimates of 0.4% and 2.5 %.

Both the stock and bond markets were closed due to the Good Friday holiday.

While the Fed considers both measures in its policymaking, it believes that the core inflation rate is a better indicator of long-term inflation pressures. The Fed targets an annual inflation rate of 2%; Core PCE inflation has not been below this level in three years.

“Nothing really surprising. “Obviously not the numbers the Fed wants to see, but I don't think this will surprise anyone when they go back to work on Monday,” Victoria Greene, chief investment officer at G Squared Private Wealth, told CNBC. “I think everyone will go to work pretty quickly and say: If we see weaknesses and cracks here, maybe this little stickiness in inflation and PCE won't matter as much.”

Rising energy costs helped the overall value rise by 2.3%. The food index rose slightly by 0.1%. Inflationary pressure came more from the goods side, which increased by 0.5%, while services increased by 0.3%. This bucked last year's trend, where services rose 3.8% while goods actually fell 0.2%.

Further upward pressure came from international travel services, air transportation, and financial services and insurance. On the goods side, the Motor Vehicles and Parts category was the largest contributor.

Along with the rise in inflation, consumer spending rose 0.8% for the month, well above the 0.5% estimate, potentially indicating additional inflationary pressures. Personal income rose 0.3%, slightly weaker than the 0.4% estimate.

The release comes just over a week after the central bank again held its key short-term lending rate steady and suggested it still hasn't made enough progress on inflation to consider cutting it. In their quarterly update on interest rate forecasts, Federal Open Market Committee members again pointed to cuts of three quarters of a percentage point this year and in 2025.

Markets expect the Fed to stay on hold again when it releases its decision on May 1 and then start cutting rates at the June 11-12 meeting. Market prices are in line with FOMC forecasts for three cuts, according to CME Group's FedWatch gauge of futures market performance.

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