Fed’s preferred inflation gauge seen staying elevated

WASHINGTON: The US Federal Reserve’s (Fed) preferred measure of underlying price pressures probably remained elevated in February, keeping officials in a precarious spot as they seek to balance inflation-fighting resolve and stress on the banking system.

The US personal consumption expenditures (PCE) price index, excluding food and fuel, is forecast to rise 0.4% from a month earlier, according to the Bloomberg survey median. That would follow the largest advance since June.

Compared with February 2022, the core inflation gauge is seen up 4.7%, while the overall measure is projected to post a 5.1% advance, both more than double the Fed’s goal.

Policymakers last week raised their benchmark interest rate for the ninth straight meeting to the highest since 2007, while stressing that their bid to tamp down inflation isn’t expected to deepen a nascent banking crisis.

Still, rising borrowing costs risk adding to the pressures on the financial system that could tip the economy into a recession.

The government’s data on Friday is also expected to show that inflation-adjusted personal spending declined in February after surging a month earlier.

Bloomberg Economics said: “Fed chairman Jerome Powell’s preferred ‘super core’ inflation indicator, core PCE services excluding housing, likely will show the sticky component of inflation running steadily at 4% to 5% over the past few months, not an encouraging sign of progress on disinflation.”

The income and spending report takes top billing in a subdued week for US economic releases that include readings on consumer confidence, home prices, and contract signings for purchases of previously-owned houses.

Investors will likely pay closer attention to Fed officials this coming week in hopes of gauging their appetite for further rate hikes.

On Sunday, during an interview on CBS,” Minneapolis Fed president Neel Kashkari said recent bank turmoil has increased the risk of a US recession but that it’s too soon to judge what it means for the economy and monetary policy. — Bloomberg

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