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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, supporting expectations of rate cuts later 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 backs expectations that the Fed will cut rates from their current 23-year highs around the middle of this year.

The month-on-month headline PCE rate for January was 0.3 per cent.

“This was a benign number,” said Peter Tchir, head of macro strategy at Academy Securities, an investment bank. “There was worry in the market that this was going to be hotter than expected, but it didn’t materialise.”

S&P 500 futures rose modestly following the data, up 0.3 per cent. The two-year Treasury yield — which moves with interest rate expectations — fell on the news, leaving it 0.01 percentage points lower on the day at 4.64 per cent.

The headline PCE figures, the lowest for almost three years, compared with a peak of 7.1 per cent for the metric in June 2022, in the aftermath of Russia’s full scale invasion of Ukraine.

The core rate for PCE, which excludes changes in food and energy prices, also came in line with expectations of 2.8 per cent. The month-on-month core measure was 0.4 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.

Bill Diviney, senior US economist at Dutch bank ABN AMRO, said that leading indicators for inflation — such as rent and used car prices — “suggest disinflation will continue over the coming months”.

He added: “We continue to think PCE inflation will be broadly back at the Fed’s . . . target by June, when we expect the Fed to begin lowering rates.”

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