Source: Wall Street News
Wall Street fears that the February PCE report will once again signal high inflationary pressure and force the Federal Reserve to abandon plans to cut interest rates three times during the year.
The Federal Reserve's most popular inflation indicator, PCE, will be released tonight, attracting close attention from investors around the world.
Wall Street fears that the February PCE report will once again signal high inflationary pressure and force the Federal Reserve to abandon plans to cut interest rates three times during the year.
According to economists surveyed by the media, US PCE rose 0.4% month-on-month in February, faster than 0.3% in January. The year-on-year growth rate is expected to rise to 2.5% from 2.4% in January.
The core PCE index, which excludes food and energy price fluctuations — is also regarded as the Federal Reserve's preferred inflation indicator — is expected to grow 0.3% month-on-month in February, slightly lower than the previous month, and the year-on-year growth rate is expected to remain unchanged at 2.8%.
In response, Chris Zaccarelli, the chief investment officer of the Independent Advisors Alliance, told the media on Wednesday,
The unexpected rise in CPI at the beginning of this month caused some anxiety on Wall Street, forcing some investors to postpone their expectations for when the Federal Reserve will cut interest rates for the first time. As a result, Friday's PCE report will be “more important than ever” as it will reveal whether the previous inflation data was temporary or the beginning of a long-term “high inflation” trend.
Market focus: Will the Federal Reserve abandon the plan to cut interest rates three times during the year
Mike Cornacchioli, senior vice president of investment strategy at Citizens Private Wealth Management, believes that traders will evaluate whether Friday's inflation report will change the Fed's plan to cut interest rates three times in 2024.
Federal Reserve officials “stand still” for the fifth time in a row last week. Meanwhile, the Federal Reserve's latest “bitmap” shows that policymakers expect to cut interest rates by 75 basis points by the end of 2024, that is, cut interest rates by 25 basis points three times. The market then began to set prices, and cutting interest rates for the first time in June was almost a foregone conclusion.
According to the CME FedWatch tool, federal funds futures traders expect a 55% chance that the first 25 basis point rate cut will occur in June.
Most major US stock indexes closed higher on Thursday, with the S&P 500 and Dow Jones indices reaching new highs. Federal Reserve Governor Waller said late the day before that high inflation and strong employment growth strengthened his view that there is no need to rush to cut interest rates this year.
It is worth noting that there are huge differences within the Federal Reserve about cutting interest rates three times during the year. The bitmap shows that out of 19 FOMC members who provided interest rate forecasts, 10 predicted three interest rate cuts this year, while 9 members expected to cut interest rates twice.
The market was closed for the Friday holiday, and the market's response to delays was more moderate?
One more question: This Friday is the Good Friday holiday, and the US financial markets will suspend trading.
According to the advice of the US Securities Industry and Financial Markets Association, US stocks will be closed on Friday, while US bonds will close trading one hour earlier at 2 p.m. ET on Thursday. Since Good Friday is a market holiday rather than a federal holiday, government departments are still open to release economic data as scheduled.
The March employment report was released on Good Friday last year. At the time, traders ended their brief stock index futures trading at 9:15 a.m. ET. The situation is different with PCE data being released this time, and all CME futures trading will be suspended on Friday.
As the market closes on Friday, traders will have their first chance to react when the futures market reopens over the weekend.
Cornacchioli believes Friday's data may provide investors with a clearer idea, but the reaction of financial markets next Monday is likely to be moderate. The reason is that investors tend to pay more attention to recent events and impacts rather than past historical data.
“The risks of this report tend to be negative,” he told the media in a telephone interview on Wednesday. “If PCE data is higher than expected, it will seriously challenge Federal Reserve Chairman Powell's statement at the press conference. At this time, if policymakers want to cut interest rates three times this year, their operating window is shrinking.”
Also worth noting is that on the last trading day of each month or quarter, investment managers usually adjust their portfolios based on changes in the value of the stocks and bonds they hold. This approach is based on responding to changes in the value of assets held and aims to optimize or maintain portfolio performance.
Editor/jayden