The Federal Reserve’s preferred measure of inflation – the Personal Consumption Expenditure (PCE) price index – rose more than expected in March, confirming concerning signs of a resurgence in inflationary pressures in the first quarter of the year.

The higher-than-expected PCE report serves as a stark reality check for traders, further postponing expectations of a Federal Reserve rate cut that had already been dwindling in recent weeks.

March PCE Report: Key Highlights

The headline PCE price index rose from 2.5% in February 2024 to 2.7% year-on-year in March, beating forecasts of a 2.6% increase, the Bureau of Economic Analysis reported Friday.

On a monthly basis, the headline PCE accelerated by 0.3%, unchanged from the 0.3% recorded in February, and matching expectations.

When excluding energy and food expenses, the core PCE price index held steady at 2.8% year-on-year, surpassing predictions of a decline to 2.6%.

On a month-over-month basis, the core PCE advanced at a 0.3% pace, unchanged from both the previous and expected 0.3%.

Market Reactions

Market-implied probabilities indicated a 60% chance of a rate cut by September 2024, and priced in cumulatively 35 basis points of rate cuts by year-end, implying just one rate cut.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF , inched higher minutes after the PCE release.

Futures on major U.S. averages rallied during Friday’s pre-market trading following upbeat quarterly results from Alphabet Inc. ( GOOG ) and Microsoft Corp. ( MSFT ) , which offset Thursday’s negative sentiment stemming from Meta Platforms Inc. ( META ) ’s weaker-than-expected guidance.

However, with the Fed’s preferred inflation gauge pushing any rate cut talks further into the future, traders may potentially brace for macro-related volatility in the last session of the week.

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