In January, the United States experienced a rise in inflation as measured by the Personal Consumption Expenditures (PCE) Price Index, increasing from 5.3% in December to 5.4%. This announcement, released by the U.S. Bureau of Economic Analysis, surpassed market expectations of 4.9%. Furthermore, the annual Core PCE Price Index, which is the Federal Reserve’s preferred gauge of inflation, rose to 4.7% from 4.6% in the same period. This increase, greater than the anticipated 4.3% projection by analysts, suggests that interest rates may need to be increased to control rising prices.
The rise in both core and overall PCE inflation by 0.6% on a month-to-month basis marks the first time in four months that the core rate of PCE inflation has risen, exceeding the Fed’s set objective of 2%. These findings raise concerns that the Federal Reserve may need to maintain higher interest rates for a longer period to curb the increase in prices.
Investors reacted poorly to the news, and financial markets adjusted their forecasts for future interest rates accordingly. The benchmark 2-year Treasury note yield rose by 7 basis points to 4.77%, marking its highest level since October. The dollar index also rose by 0.52% to 105.14, a seven-week high, while S&P 500 futures suffered a loss of more than 1.3%, and Dow futures dropped more than 300 points following the report.
Additionally, the crypto market experienced a significant dump, with Bitcoin trading at $23,750, reflecting a decline of 0.61% over the past hour and 2% over the past 24 hours. Ethereum’s price remained steady at $1,634.
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