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April Inflation Data Sends Mixed Signals – Will the Fed Cut Rates Soon?

by Team Lumida
June 3, 2024
in Macro
Reading Time: 3 mins read
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Photo by Anne Nygård on Unsplash

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Key Takeaways:

  1. April PCE price index rose 0.3%, matching March’s increase.
  2. Consumer spending slowed to 0.2% in April from 0.7% in March.
  3. Fed rate cuts in September now face uncertain odds.

What Happened?

In April, U.S. inflation remained steady, with the Personal Consumption Expenditures (PCE) price index increasing by 0.3%, mirroring the growth in March. Year-over-year, the PCE price index rose 2.7%. Consumer spending, which drives over two-thirds of U.S. economic activity, grew by just 0.2% in April, a significant drop from the revised 0.7% increase in March.

Revised GDP data revealed that consumer spending had already slowed to a 2.0% pace in Q1 from 3.3% in Q4 2023. Elizabeth Renter, a senior economist at NerdWallet, commented, “People have been pinched for a while, and it’s likely starting to show.”

Why It Matters?

The Fed tracks the PCE price index closely to achieve its 2% inflation target. April’s data suggests inflation may linger at elevated levels, complicating the Fed’s timeline for potential rate cuts. Slower consumer spending could temper price increases, but it also hints at a cooling economy.

Chris Zaccarelli, CIO at Independent Advisor Alliance, warned, “If consumer spending – and the economy – slows too quickly, then corporate profits and stock prices will go down much more quickly than the Fed will be able to cut rates.”

What’s Next?

Markets had initially expected the first rate cut in March, then June, and now September. However, with inflation staying stubborn and consumer spending weakening, the Fed faces a challenging decision. Traders have roughly even odds on a September rate cut and have increased the probability of a second cut in December.

Investors should monitor upcoming inflation and consumer spending data closely, as these will significantly influence the Fed’s policy decisions. Watch for shifts in Treasury yields and stock market responses, as these can offer clues about future economic trends.

With inflation still sticky and job gains slowing, the Fed has kept its benchmark policy rate in the 5.25%-5.50% range for ten months. Any shifts in consumer behavior or spending patterns could impact corporate profits and stock prices, making it essential to stay updated on economic reports.

Source: Reuters
Tags: consumer spendingFederal ReserveInflationInterest RatesPCE price index
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018