Inflation Report Clouds Fed Outlook on Rate Cuts As Recession Fears Loom

• Latest inflation report shows core PCE price index rose 0.4% last month and 2.8% annually, conflicting with Fed's goal to tame inflation • Citi economists warn odds of a recession have increased due to need for higher rates and less prospect for near-term disinflation
• Capital Economics views inflation bump as a "speed bump" that pushes back but doesn't change Fed's broader disinflation trajectory • Personal spending and real disposable income fell in January, signaling consumers are pulling back which could ease inflation
• While the report complicates near-term rate cut hopes, narrative remains the Fed's next move is still likely a rate cut