Fed’s Preferred Inflation Gauge Plummets to Near Three-Year Low, But National Debt Soaring to $34 Trillion Concerns

The U.S. Federal Reserve’s preferred inflation gauge slowed to its lowest level in nearly three years last month at a time in which consumer spending has been nevertheless raising concerns that inflation may not be dropping as fast as expected concerning equity markets.

As first reported by TheStreet, the Bureau of Economic Analysis reported that its PCE Price Index, which tracks core prices, dropped to 2.9% last month in a decrease that beat Wall Street’s expectations of 3% and was lower than November’s figure of 3.2%, marking the lowest reading since March 2021. On a month-to-month basis, core inflation rose slightly by 0.2%, a small uptick from November’s 0.1% increase.

Markets closely monitor the core PCE price index as the Federal Reserve sees it as a more accurate reflection of consumer-price changes, incorporating shifts in spending habits. The overall PCE index remained at 2.6%, matching Wall Street expectations.

As for the Federal Reserve’s next moves, CME Group’s FedWatch tool, anticipating no rate changes at the Fed’s policy meeting next Wednesday, is divided on a March rate cut. However, the likelihood of a cut in May is estimated at about 92%.

Nevertheless, the U.S. national debt remains a major concern for investors, with analysts suggesting that the country may be facing a “debt death spiral” as its total reaches $34 trillion after rising by more than $82 billion in a single month.

As reported, analysts from Jefferies have now cautioned that the Federal Reserve may have to resume its money printing—possibly causing the U.S. dollar to crash and boosting the price of the flagship cryptocurrency, Bitcoin, as it competes with gold.

In a recent note to clients, Christopher Wood, global head of equity strategy at Jeffries, called Bitcoin and gold “critical hedges” against the return of inflation as G7 central banks “will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another.”

The Federal Reserve’s preferred inflation gauge dropping below 3% saw yields on benchmark 10-year Treasury notes climb slightly to 4.141%, partly due to the higher spending figures, while 2-year notes were at 4.353%.

Meanwhile the stock market’s benchmark index, the S&P 500, rose 0.17% to 4,902 as it keeps making new all-time highs.

Featured image via Pixabay.