The Fed's stance of holding interest rates higher for longer likely won't be shaken after a fresh reading from the central bank's favored inflation gauge showed continued price stickiness.
The so-called core Personal Consumption Expenditures index, which excludes volatile food and energy prices the Fed can’t control, clocked in at 2.8% over the prior year in April. That annual increase was unchanged from March and in line with expectations.
But the month-over-month increase in April showed a sliver of progress, clocking in at 0.2%. That was a tenth of a percent lower than the level for March and represented the slowest such increase for the index so far in 2024.
"What we ended up getting was a mix," Ryan Wang, HSBC US economist, said to Yahoo Finance.
The Fed "will be happy" with the month-over-month easing but the flat year-over-year figure "really doesn’t indicate much progress on disinflation this year."
Thus the new inflation reading isn't likely to alter the caution expressed by numerous Fed officials in the weeks since the last Fed meeting on May 1.
Cuts will happen "at some point," New York Fed president John Williams said Thursday. But "I don’t feel any urgency."
What's more, Fed Chair Jerome Powell has made clear that he thinks the Fed will need more than a quarter's worth of data to make a judgment on whether inflation is steadily falling toward the central bank's goal of 2%.
Fed Governor Chris Waller appears to want more, noting he would like to see "several" months of data. That implies it will take more than three inflation reports for the Fed to feel confident about lowering rates.
Hopes for a rate cut this year are dwindling. Investors have now scaled back the odds of the potential first rate cut in September, with a nearly 50% chance the Fed won’t cut rates that month. The odds of a cut in November are 46%.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Wang of HSBC said he still expects one 2024 rate cut in September. EY Chief Economist Gregory Daco said in a note Friday that "we continue to foresee two rate cuts this year in July and November on easing inflation and softening labor market conditions even if the risks of a delayed onset in September are growing."
The Fed decided at its last meeting to keep its benchmark interest rate at a 23-year high in a range of 5.25%-5.50%.
Minutes from the May policy meeting released last week indicated some policymakers discussed their willingness to raise rates if necessary.
Minneapolis Fed president Neel Kashkari said earlier this week he is not ruling out an interest rate hike. although it’s likely the Fed could hold rates steady for an "extended" time as it waits for inflation to drop.
"We could sit here for as long as necessary until we get convinced that inflation is sustainably going back down to our 2% target," he said.
Click here for in-depth analysis of the latest stock market news and events moving stock prices.
Read the latest financial and business news from Yahoo Finance