As important as Friday’s Personal Consumption Expenditure (PCE) inflation data will be for the Fed, analysts have noted comments by rate setters, stating that more than a single month’s worth of evidence will be needed to inform current monetary policy.
An economists’ poll predicted the key PCE core deflator reading rising 0.3% m/m and by 2.7% y/y, compared to March’s 0.3% and 2.7% prints respectively. The headline PCE deflator is forecast to have risen by 0.3% and 2.7% respectively.
SocGen’s Stephen Gallagher noted that the focus was increasingly on the unrounded print in order to calibrate the risks. “We have made our early calculations of 0.3% for both the headline and the core measure. More specifically, we forecast a 0.27% increase for the headline and a 0.28% increase for the core PCE.”
As always, observers will pay close attention to the super-core rate, which excludes all goods prices, food and energy prices, and housing costs. Gallagher explained this gauge makes up 49-50% of the PCE deflator, whereas it only comprises about 25-26% of the CPI.
Personal income is projected to have risen 0.3% versus 0.5% last, whilst real personal spending is pegged to have slowed to 0.1% from 0.5%.
Following in the footsteps of CPI
US CPI data released mid-month showed a further easing in the headline inflation rate, printing a 0.3% rise on the month and 3.4% in the 12 months to April, softer than the 3.5% in March. Core CPI increased 0.3% m/m versus 0.4% prior.
Breaking down the numbers, TD Securities' Oscar Munoz posited that the report should be judged positively in the eyes of Fed leadership. “While the m/m core dynamics are still a distance away from what the Fed would prefer to see, the ongoing gradual deceleration in housing inflation bodes well for medium-term expectations. Our forecast for core PCE inflation in April at 0.25% m/m brings those dynamics a step closer to what the Fed wants to see.”
Economists look for broad-based disinflation within core services, whilst core goods are expected to have accelerated slightly.
Pushing back the cuts
Most forecasters have set back rate cut expectations until September and beyond, now following recent data and comments by some Fed officials.
Fed staff forecasters, at odds with the street, look for core PCE to print 2.75% in April, and Barclays noted that the Fed’s reaction function appeared more hawkish. “This week's FOMC communications largely reiterated recent messaging emphasising patience, the need to see more data, and the likelihood that rates will be held ‘higher for longer.’ Discussions in the May minutes suggest that many participants were more hawkish than markets had perceived from Powell's press conference, particularly regarding their willingness to question whether policy is sufficiently restrictive, as well as to adjust the policy rate accordingly if the data does not point to a return to sustained disinflation after the next few months.”
Federal Reserve Bank of Minneapolis Governor, Neel Kashkari epitomised most Fed officials. In his most recent interview, he declared “Many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back.” When asked what conditions were needed for the Fed to cut rates once or twice this year, he added that a rate increase shouldn’t be taken off the table, acknowledging that although the labour market had softened, it was still tight.
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- Annual core PCE deflator seen steady at 0.3%
- Personal income forecast to rise in line with March
- Fed officials prepared to wait out the summer
- Market pricing predicting rate cuts to start in Q3
By Harry Daniels
LiveSquawk News
@HarryDaniels71
30 May 2024 | 15:30 GMT
As important as Friday’s Personal Consumption Expenditure (PCE) inflation data will be for the Fed, analysts have noted comments by rate setters, stating that more than a single month’s worth of evidence will be needed to inform current monetary policy.
An economists’ poll predicted the key PCE core deflator reading rising 0.3% m/m and by 2.7% y/y, compared to March’s 0.3% and 2.7% prints respectively. The headline PCE deflator is forecast to have risen by 0.3% and 2.7% respectively.
SocGen’s Stephen Gallagher noted that the focus was increasingly on the unrounded print in order to calibrate the risks. “We have made our early calculations of 0.3% for both the headline and the core measure. More specifically, we forecast a 0.27% increase for the headline and a 0.28% increase for the core PCE.”
As always, observers will pay close attention to the super-core rate, which excludes all goods prices, food and energy prices, and housing costs. Gallagher explained this gauge makes up 49-50% of the PCE deflator, whereas it only comprises about 25-26% of the CPI.
Personal income is projected to have risen 0.3% versus 0.5% last, whilst real personal spending is pegged to have slowed to 0.1% from 0.5%.
US CPI data released mid-month showed a further easing in the headline inflation rate, printing a 0.3% rise on the month and 3.4% in the 12 months to April, softer than the 3.5% in March. Core CPI increased 0.3% m/m versus 0.4% prior.
Breaking down the numbers, TD Securities' Oscar Munoz posited that the report should be judged positively in the eyes of Fed leadership. “While the m/m core dynamics are still a distance away from what the Fed would prefer to see, the ongoing gradual deceleration in housing inflation bodes well for medium-term expectations. Our forecast for core PCE inflation in April at 0.25% m/m brings those dynamics a step closer to what the Fed wants to see.”
Economists look for broad-based disinflation within core services, whilst core goods are expected to have accelerated slightly.
Most forecasters have set back rate cut expectations until September and beyond, now following recent data and comments by some Fed officials.
Fed staff forecasters, at odds with the street, look for core PCE to print 2.75% in April, and Barclays noted that the Fed’s reaction function appeared more hawkish. “This week's FOMC communications largely reiterated recent messaging emphasising patience, the need to see more data, and the likelihood that rates will be held ‘higher for longer.’ Discussions in the May minutes suggest that many participants were more hawkish than markets had perceived from Powell's press conference, particularly regarding their willingness to question whether policy is sufficiently restrictive, as well as to adjust the policy rate accordingly if the data does not point to a return to sustained disinflation after the next few months.”
Federal Reserve Bank of Minneapolis Governor, Neel Kashkari epitomised most Fed officials. In his most recent interview, he declared “Many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back.” When asked what conditions were needed for the Fed to cut rates once or twice this year, he added that a rate increase shouldn’t be taken off the table, acknowledging that although the labour market had softened, it was still tight.