The Fed's main measure of inflation rose 2.8% annually, as expected

Including volatile food and energy costs, the headline PCE reading showed an increase of 0.3% for the month and 2.5% for the 12-month average, compared to estimates of 0.4% and 2.5%.

Stock and bond markets were closed for the Good Friday holiday.

While the Fed looks at both measures when making policy, it considers core a better measure of longer-term inflation pressures. The Federal Reserve targets an annual inflation rate of 2%; Core PCE inflation has not been below this level for three years.

“Nothing really surprising. Obviously these are not the numbers the Fed wants to see, but I don't think this will surprise anyone when they go back to work on Monday,” Victoria Green, chief investment officer at G Squared Private Wealth, said. For CNBC. “I think everyone will pivot pretty quickly and say well, maybe if we see some weakness and cracks here, this little flatness in inflation and personal consumption expenditures won't matter as much.”

Rising energy costs helped lift the headline reading, with an increase of 2.3%. The food index rose by 0.1%. Inflationary pressures came more from goods, which rose by 0.5%, compared to an increase in services by 0.3%. This reversed the trend over the past year, with services up 3.8% while goods actually fell 0.2%.

Other upward pressures came from international travel services, air transportation, financial services and insurance. On the goods side, the automobile and spare parts category was the largest contributor.

Along with the increase in inflation, consumer spending rose 0.8% month-on-month, well above estimates of 0.5%, which could indicate additional inflationary pressures. Personal income rose 0.3%, slightly below estimates of 0.4%.

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The release comes just over a week after the central bank once again held its benchmark interest rate for short-term borrowing steady and indicated it had not yet seen enough progress on inflation to consider lowering it. In their quarterly update of interest rate forecasts, FOMC members again pointed to three quarter-point cuts this year and in 2025.

Markets expect the Fed to remain in a holding pattern again when it issues its decision on May 1, and then begin cutting at its June 11-12 meeting. Market pricing is in line with the Federal Open Market Committee's forecast of three cuts, according to CME Group's FedWatch measure of futures market movement.

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