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US inflation falls to 2.4% according to Fed’s preferred measure

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US inflation fell to 2.4 per cent in the year to January, according to the metric most closely watched by the Federal Reserve, bolstering expectations of rate cuts this year.

Thursday’s data on Personal Consumption Expenditures, the US central bank’s preferred gauge of price pressures, matched economists’ expectations of 2.4 per cent in a Bloomberg survey.

The fall from December’s rate of 2.6 per cent will boost expectations that the Fed will cut rates from their current 23-year highs around the middle of this year.

S&P 500 futures rose modestly following the data, rising 0.2 per cent. The two-year Treasury yield — which moves with interest rate expectations — fell on the news, but remained higher overall on the day.

The core rate for PCE, which excludes changes in food and energy prices, came in line with expectations of 2.8 per cent.

Thursday’s figures from the Bureau of Economic Analysis are separate to the US’s consumer price index, which rose 3.1 per cent in the year to January.

The Fed is unwilling to lower borrowing costs from current levels of 5.25 per cent to 5.5 per cent until it is confident price pressures have sustainably returned to the target of 2 per cent.

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