The latest reading of the Fed's preferred inflation showed prices increased more than expected in March.

The core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, rose 2.8% over the prior year in March, above estimates for 2.7% and unchanged from the increase seen in February.

Compared to the prior month, core PCE rose 0.3%, in line with Wall Street's expectations.

The reading comes as consistently hot inflation reports have dampened investors' expectations for interest rate cuts by the Federal Reserve this year. Fed chair Jerome Powell has consistently reiterated that the Fed won't be cutting rates until it has "greater confidence" in inflation's decline.

"The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence," Powell said on April 16.

Friday's reading of March PCE comes after a look at the metric for the quarter surprised investors on Thursday. Data from the Bureau of Economic Analysis showed "core" inflation grew by 3.7% year over year in the first quarter, above estimates for 3.4% and significantly higher than 2% gain seen in the prior quarter.

This spooked investors. Treasury yields hit their highest levels since November 2023, stocks headed lower and investors priced lower their bets that the Federal Reserve will cut rates at all this year.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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