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Fed Inflation Gauge Jumps Higher In April, Lifting Rate Hike Bets

Updated at 9:25 am EDT

The Federal Reserve‘s preferred measure of U.S. inflation quickened again April, data indicated Friday, suggesting the central bank’s effort to tame consumer price pressures will likely last well into the summer months. 

The April core PCE Price Index rose 4.7% from last year, up from the revised 4.4% pace recorded in March and coming in higher than consensus Street forecast of 4.6%. The core index was up 0.4% on the month, the Bureau of Economic Analysis reported, just ahead of both last month’s pace and the Street consensus forecast of 3.9% and 0.3% respectively. 

The headline PCE index rose 0.4% on the month and 4.4% on the year, with both readings coming in hotter than analysts’ forecasts. Personal incomes rose by 0.4% while real personal spending rose 0.8% from March, the BEA noted, firmly ahead of Street forecasts of a 0.4% gain.

Commerce Department data published Thursday showed the closely-tracked core PCE price index for the first quarter, one of the Federal Reserve’s favored inflation metrics, accelerated at a 5% pace, topping first estimate of 4.9% reported earlier this month.

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U.S. stocks pared earlier gain following the data release, with futures tied to the Dow Jones Industrial Average indicating a 7 point opening bell gain and those linked to the S&P 500 priced for a 1 point move to the downside.

Benchmark 2-year Treasury note yields gained 13 basis points to 4.610%, while 10-year notes were pegged 5 basis points higher at at 3.839%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.05% higher at 104.022. 

“Prices rose more than expected this morning, with the 10-year rising above 3.8% for the first time since February,” said Peter Essele, Head of Portfolio Management for Commonwealth Financial Network in Waltham, Mass.The rise in prices puts a June hike back in play, perhaps even greater than a quarter percent hike in a last-ditch effort by the Fed to put out the inflationary fire once and for all.” 

The CME Group’s FedWatch is currently pricing in a 58.5% chance of a 25 basis point rate hike in June, up from just 17.4% a week ago, with bets on a move higher in July pegged at around 77.5% should the Fed decide to pause. 

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