Inflation on Target

Inflation on Target

The most highly anticipated economic data this week was the PCE inflation report, and it was right in line with expectations. Beyond that, first quarter GDP contained mixed news for mortgage markets. As a result, rates ended the week with little change, remaining near the highest levels of the year.

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator. In March, core PCE, which excludes food and energy to reduce short-term volatility, was up 2.8% from a year ago. This was the same annual rate of increase as last month and the lowest level since March 2021. While far below its recent peak, it remains above the Fed’s target of 2.0%.

Gross Domestic Product (GDP) is the broadest measure of economic activity. During the first quarter of 2024, U.S. GDP rose at an annualized rate of 1.6%, well below the consensus forecast of 2.5% and down from 3.4% during the fourth quarter of 2023. Strength was seen in consumer spending, government spending, and residential investment, while an unexpected increase in imports subtracted from the overall growth rate. The inflation component of the report was higher than expected, offsetting the positive impact for mortgage markets of slower growth.  

In the housing sector, sales of new homes in March jumped 9% from February to the highest level since September. With these nice gains, new home sales were 8% higher than last year at this time. The median existing-home price of $430,700 was 2% lower than a year ago. 

The next Fed meeting will take place on Wednesday. No change in rates is expected, and investors will look for Fed officials to elaborate on their plans for future monetary policy. For economic reports, the ISM national manufacturing index will come out on Wednesday and the national services sector index on Friday. The key Employment report also will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month.