12:31 PM EDT, 03/28/2025 (MT Newswires) -- US equity indexes fell after the Federal Reserve's preferred inflation measure grew more than forecast, exacerbating concerns related to price pressures building in the economy ahead of reciprocal tariffs to be announced next week.

The Nasdaq Composite fell 2.5% to 17,360.1, with the S&P 500 down 1.8% to 5,591.2 and the Dow Jones Industrial Average 1.5% lower at 41,666.3 after midday on Friday. All sectors except utilities and healthcare fell intraday. The worst performers were communication services, consumer discretionary, and technology.

February's core personal consumption expenditures price index, which excludes food and energy, accelerated to 2.8%, the Bureau of Economic Analysis said on Friday. The growth was higher than the previous month's 2.7% increase, which is the Bloomberg consensus for February. Sequentially, the core measure rose to 0.4% from January's 0.3% gain, the pace estimated by analysts for February.

The growth in the annual headline PCE price index remained unchanged at 2.5%, meeting Wall Street forecasts. Monthly inflation held steady at 0.3% for the third consecutive month in February, matching the market estimate.

Personal consumption expenditures rose 0.4% in February after declining 0.3% the month before, lagging the Bloomberg-polled consensus for a higher spending growth rate of 0.5%.

"The subdued rise in spending in February confirms that real consumption growth is on track for sub-1% annualized growth in (the first quarter)," Oxford Economics Deputy Chief US Economist Michael Pearce said in remarks emailed to MT Newswires.

Further, in economic news, the University of Michigan consumer sentiment index was revised lower to 57 for March from 57.9 in the preliminary estimate, compared with expectations for no revision in a survey compiled by Bloomberg. The final reading for February was 64.7. Respondents in the Michigan poll expected a 5% inflation rate over the next year and 4.1% annual inflation over the next five years, up from 4.3% and 3.5%, respectively, in February.

President Donald Trump's tariffs on new cars and parts and reciprocal tariffs coming early next week will "add upside risks to inflation and downside risks to growth," Morgan Stanley said in a note. "If permanent, the announced auto tariffs might add 20-30bp to 2025 inflation."

Following the PCE data, the probability of interest rates being reduced by 100 basis points in aggregate to 3.25% to 3.5% by the end of this year increased to almost 19% on Friday from nearly 16% a day ago, according to the CME Group's FedWatch Tool. This was the biggest percentage increase in probability out of the scenarios possible this year. The dominant likelihood at a third remains for 75 basis points of cuts between now and the end of 2025.

Most US Treasury yields fell intraday, with the 10-year yield down 9.1 basis points to 4.27% and the two-year rate 5.5 basis points lower at 3.94%.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.