Federal Reserve’s preferred inflation metric remains at 2.7% in April

US inflation held at 2.7 per cent in the year to April, according to the metric the Federal Reserve uses to set its target for price pressures.

Friday’s data on personal consumption expenditures index was in line with economists’ expectations that inflation would remain the same as in March.

The Fed’s target for headline PCE index is 2 per cent.

Core PCE, which ignores changes in food and fuel prices, was 2.8 per cent, also in line with expectations.

The monthly headline figure was 0.3 per cent higher and the core figure 0.2 per cent.

Fed officials’ next rate-setting vote is on June 12. They are expected to say they need more data on inflation before lowering borrowing costs from their current 23-year high of 5.25 per cent to 5.5 per cent.

Investors say the data leaves US rate-setters just about on track to cut rates ahead of US presidential elections in November, providing a potential boost for current White House incumbent Joe Biden.

Markets expect one quarter-point cut this year, with a slightly more than 50 per cent chance of the first being in September — the final policy decision ahead of the election.

The data, published by the Bureau of Economic Analysis, also showed US shoppers are reining in their spending, with real consumption expenditures falling 0.1 per cent.

“Everything suggests that consumer is and should be slowing — you’ve got high interest rates, a labour market that’s coming off the boil and prices going up,” said Sameer Samana, senior global market strategist at Wells Fargo. “If anything, it’s maybe showing up a little bit later than we anticipated.”

The Fed is “likely to be a bit relieved with this number, but not satisfied by any means”, Point72 chief economist Dean Maki said.

“It’s not easy to have a high conviction view on the Fed policy because the Fed itself doesn’t really know what it is going to do,” Maki added. “It really depends on these month-on-month core inflation prints, which have been quite volatile in recent months.”

US stocks opened higher on Friday after the release of April’s PCE data, but endured a volatile session as tech stocks dragged the market into the red before a late rally took hold. Wall Street’s S&P 500 gained 0.8 per cent to close at a session high, while the tech-heavy Nasdaq Composite recovered to be less than 0.1 per cent fractionally lower at the closing bell. Both indices still notched their first weekly decline since mid-April.

In government bond markets, the policy-sensitive two-year Treasury yield slipped 0.05 percentage points lower to 4.88 per cent, while the benchmark 10-year yield fell 0.05 percentage points to 4.50 per cent. Falling yields reflect rising prices.

Additional reporting by Martha Muir in Washington