The latest reading of the Fed's preferred inflation gauge showed inflation slowed in April as prices increased in line with Wall Street expectations.
The core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, rose 0.2% in April, in line with Wall Street's expectations but slower than the 0.3% increase seen in March.
Core PCE was up 2.8% over the prior year in April, in line with estimates and unchanged from the annual increase seen in the last two months. April's reading marked the slowest month-over-month increase for the index of 2024.
Oxford Economics deputy chief US economist Michael Pearce noted the cooling in month-over-month increases "represents better news on inflation than we saw in the first quarter."
The report comes as markets have been adjusting to the prospect of the Federal Reserve holding interest rates higher for longer than initially feared. As of Friday morning, investors were pricing a roughly 50-50 chance the Fed's first interest rate cut comes in September, per the CME FedWatch Tool.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Fed officials have repeatedly said they're waiting for greater confidence in inflation's decline before it would be appropriate to reduce interest rates.
On Thursday, New York Fed president John Williams said he believes inflation will start declining again in the second half of 2024.
"I see some of the recent inflation readings as representing mostly a reversal of the unusually low readings of the second half of last year, rather than a break in the overall downward direction of inflation," Williams said in a speech at the Economic Club of New York.
Economists have reasoned that further declines in inflation later this year could keep a September interest rate cut on the table.
"Fed officials will need more than one month of better inflation readings to bolster their confidence enough to start to cut rates later this year,” Nationwide chief economist Kathy Bostjancic wrote after Friday's release. “We forecast that further improvement in inflation is in the cards over the coming months and continue to see September as a time the Fed commences rate cuts.”
Correction: A previous version of this article misspelled the last name of Kathy Bostjancic. We regret the error.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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