Key Fed Inflation Data Hot As Oil Prices Torch Rate-Cut Hopes; S&P 500 Futures Rise (Live Coverage)

• Core PCE inflation climbed to 3.1% year-over-year, exceeding the forecast of steady 3.0%, while the monthly increase of 0.4% (0.363% unrounded) matched expectations
• Market-implied odds of a Fed rate cut have collapsed to less than 1% for the March meeting and just 28% through June, with a coin-flip probability not reached until September
• Fourth-quarter GDP was sharply revised downward to 0.7% annualized growth from 1.4%, reflecting weaker exports, consumer spending, and government expenditures

Market Summary: Fed Inflation Data and Rate Cut Outlook

Key Economic Data

The Fed's primary inflation gauge, the core PCE price index, rose 0.4% month-over-month in January, pushing the 12-month inflation rate to 3.1%, up from 3.0% and above expectations of holding steady. The actual monthly increase was 0.363%, representing a minor overshoot. The headline PCE rose 0.3% monthly, with annual inflation dipping to 2.8% from 2.9%.

Fourth-quarter GDP was sharply revised down to 0.7% (annualized) from 1.4%, reflecting downward adjustments to exports, consumer spending, and government spending. Personal income rose 0.4% (below 0.5% forecast), while personal consumption increased 0.4% (beating 0.3% expectations).

Market Implications

The hotter-than-expected inflation data further diminishes near-term rate cut prospects. Market odds now show less than 1% probability of a rate cut at next week's Fed meeting, just 9% through April 29, and only 28% through June 17. A rate cut isn't favored by markets until the October 28 meeting (56% probability), down from 81% a week ago.

Market Response

S&P 500 futures rose 0.55% following the data release, recovering from Thursday's 1.6% decline. The index stands 4.4% below its January 27 record high. The 10-year Treasury yield edged down to 4.24%. Crude oil prices fell nearly 3% to below $94/barrel after the U.S. relaxed Russian oil sanctions.

Job openings data for January was also scheduled for release, with economists expecting 6.75 million openings.