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Federal Reserve Inflation Gauge Eases In March, But Steep Rate Hike Bets Hold

The Federal Reserve's preferred inflation gauge eased from multi-decade highs last month data from the Bureau of Economic Analysis indicated Friday.

Updated at 9:10 am EST

The Federal Reserve's preferred measure of U.S. inflation eased from multi-decade highs last month, data indicated Friday, but not likely fast enough to disrupt the central bank's rate hike path ahead of next week's policy meeting in Washington. 

The March core PCE Price Index rose 5.2% from last year, easing from the highest levels since 1983, and 0.3% on the month, the Bureau of Economic Analysis reported, a figure that was largely in line with Wall Street forecasts and could indicate early signs of easing consumer price pressures. The February increase was revised lower, to 0.3% from 0.4%.

The Bureau of Labor Statistics said earlier this month that headline inflation accelerated to the fastest pace in four decades in March, but data showed that so-called core inflation, which strips-out volatile components such as food and energy prices, only rose 0.3% on the month, with the annual reading of 6.5% coming in just shy of the Street consensus forecast.

However, the headline PCE index was up 0.9% on the month and 6.6% on the year, the highest levels since 1980. Personal income rose by the faster-than-expected pace of 0.5%, while personal spending rose 1.1%, the BEA noted, firmly ahead of the Street consensus forecast.

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"These data have no immediate policy implications because the Fed has long been set on a 50 basis point hike in May, but at the margin it makes a second 50 basis point hike in June more likely," said Ian Shepherdson of Pantheon Macroeconomics. "After that, all bets are off, and the pace of tightening could easily be slowed by the meltdown in the housing market, now in its early stages, and the coming rapid decline in inflation."

The is showing a 98.7% chance of a 50 basis point rate hike in March, as well as a similar chance of follow-on move of 75 basis points in June.

Stocks on Wall Street futures were little-changed following the data release, with futures tied to the Dow Jones Industrial Average indicating a 165 point opening bell decline and those linked to the S&P 500, which is down 5.4% for the month, priced for a 44 point slide.

Benchmark 10-year U.S. Treasury bond yields edged higher, to 2.885% while the US dollar index, which tracks the greenback against a basket of six global currencies, fell from a near two-decade high to 103.199

, a real-time benchmark, suggests U.S. economic growth is growing at a 0.4% clip, while the Commerce Department's first estimate of first quarter growth showed a contraction of 1.4%, the first in two year.