The Fed is thought to monitor the inflation gauge that was issued Friday, called the personal consumption expenditures price index, even more closely than it does the government's better-known consumer price index. Typically, the PCE index shows a lower inflation level than CPI. In part, that's because rents, which have been among the biggest drivers of inflation, carry twice the weight in the CPI that they do in the PCE.
However, a key index of underlying inflation that is closely followed by the Federal Reserve remained elevated last month, keeping the Fed on track to raise interest rates next week for the 10th time since March of last year.The index, which excludes volatile food and energy costs to capture"core" prices, rose 0.3% from February to March and 4.6% from a year earlier — still far above the Fed's 2% target rate.
As a result, the Fed is poised to announce another interest rate hike after its policy meeting next week. The likely quarter-point rise in its benchmark rate would raise it to about 5.1%, the highest level in 17 years. There is growing evidence that the Fed's efforts to slow consumer spending and economic growth are succeeding. The government's figures Friday on consumer spending suggested that consumers have grown more cautious since the start of the year, when spending had jumped 2% just in January. The spending surge that month was fueled by a nearly 9% jump in Social Security and other benefit payments that are intended to keep pace with inflation.