Persistent inflation, including unexpected monthly price upticks in early 2024, have kept the Federal Reserve in an extended hold position on making any downward adjustment to its federal funds rate, which has remained at a decadeslong high since last summer.
But the latest Personal Consumption Expenditure report from the U.S. Department of Commerce finds that while inflation still inched up from March to April, it was the smallest monthly increase so far this year and annual inflation held steady.
The Friday report shows the core PCE index, which excludes volatile food and energy prices, rose .2% from March to April and came in at an annual rate of 2.8% last month, matching March’s 12-month rate. Overall prices captured in the measure rose .3% month over month, matching the previous monthly uptick, and held steady at an annual rate of 2.7% in April.
The core PCE index is the Fed’s preferred metric when it comes to how the monetary body assesses inflationary impacts.
Near the end of last year, Federal Reserve Chairman Jerome Powell was sounding optimistic about the direction of the U.S. economy and signaled 2024 could see a series of downward adjustments to the monetary body’s benchmark federal funds rate.
But that rosy glow faded somewhat as the first months of the year saw inflation bucking a steady downward trend that was in play for most of 2023 and has instead been back on the rise.
And at the conclusion of the Fed’s policy meeting earlier this month, Powell said that inflationary persistence helped push the body’s Open Market Committee to support standing pat on the 5.25% to 5.5% interest rate range that has been in play since last July and is the highest in over 20 years.
“In recent months, inflation has shown a lack of further progress toward our 2% objective,” Powell said during a May 1 press conference. “It is likely that gaining greater confidence will take longer than previously expected.”
Will interest rates go down?
It’s not likely that a single month-over-month slowdown in inflation growth will lead to a quick response from the Fed as far as interest rate adjustments go, but some economists believe Friday’s data could reflect the beginning of a march toward the monetary body’s target rate of 2% annual inflation and said an adjustment may come as soon as late summer.
“The PCE Price Index didn’t show much progress on inflation, but it didn’t show any backsliding, either,” Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley, told CNBC on Friday. “The Fed has suggested it will take more than one month of favorable data to confirm inflation is reliably moving lower again, so there’s still no reason to think a first rate cut will come any earlier than September.”
Interest rate adjustments are the Fed’s primary weapon in an ongoing battle against the elevated prices of consumer goods and services. While the monetary body has paused making any rate adjustments since its July 2023 meeting, it had imposed 11 increases going back to March 2022, the most aggressive series of rate hikes in decades.
The rate increases raise the cost of debt for businesses and consumers, a move that aims to reduce the amount of spending and overall economic activity. That shift in dynamics typically leads to lower inflation rates.
How Utahns feel about the economy
Earlier this year, Utahns registered their collective pessimism over what direction the economy will be headed in 2024.
When asked, “Looking ahead, how are you feeling about the economy in the coming year?” in a statewide poll conducted in late January by the Deseret News in partnership with the Hinckley Institute of Politics, 52% of respondents said they were somewhat or very pessimistic, 43% reported being somewhat or very optimistic, and 6% said they didn’t know.
And in a follow-up question asking poll participants how concerned they were about inflation, 87% said they were somewhat or very concerned, 11% said they were not very or not at all concerned, and 2% weren’t sure about their feelings.
Republican poll participants were less optimistic than Democrats in their feelings about the economy in the coming year, 39% to 54%, respectively, and more concerned about inflation, 89% to 77%.
In the poll, respondents with lower incomes were more down on the economic outlook than those with higher incomes. Younger residents, too, expressed more pessimism than older residents.