Source: Golden Ten Data

On Friday, Beijing time, data showed that the Federal Reserve's preferred inflation index had cooled down. The US core personal consumption expenditure price (PCE) index recorded a monthly rate of 0.30% in February, in line with expectations, lower than the previous value of 0.40%; recorded an annual rate of 2.8%, in line with expectations, the same as the previous value of 2.80%. The monthly rate of personal spending in the US recorded 0.8% in February, higher than the forecast of 0.50% and the previous value of 0.20%, the biggest increase since January 2023.

Economists believe that the reason for the increase in core PCE over the previous month is the rise in gasoline prices. Foreign media said that US consumer spending rebounded in February after being sluggish at the beginning of the year, indicating that consumers still have sufficient purchasing power.

Goldman Sachs said that although inflation in core services other than housing rose sharply in January, inflation should get back on track in the next few months. Against the backdrop of labor market rebalancing and slowing wage growth, price growth in labor-intensive industries such as food and lodging should continue to slow down.

Foreign media said that in the short term, some domestic factors in the US may continue to increase inflationary pressure. For example, gasoline prices are rising, as is usually the case in summer. The prospect that the US national average gasoline price may reach 4 US dollars per gallon is still open to discussion. Meanwhile, analysts are also evaluating whether the Baltimore bridge collapse this week will exacerbate supply chain disruptions.

Powell will speak at 23:30. Foreign media said investors need to pay attention to whether he will adopt a dovish tone like last week's monetary policy meeting, or take a more hawkish stance.

Expectations of interest rate cuts

According to the CME “Federal Reserve Watch”, after the US PCE data was released, the probability that the Fed would stay on hold in May remained unchanged at 95.8%. The probability of cutting interest rates by 25 basis points is 4.2%. The probability of keeping interest rates unchanged by June is 36.4%, the probability of cutting interest rates by 25 basis points is 61%, and the probability of cutting interest rates by 50 basis points is 2.6%. Traders expect the possibility that the Fed will cut interest rates by June is about 64%.

Previously, the market had changed its expectations for interest rate cuts to begin in the first half of this year. The possibility of interest rate cuts in May has declined sharply. Currently, futures are more likely to be cut by the Federal Reserve for the first time in June or July. Analysts said that the US February core PCE price index released on Friday remained flat at 2.8% per annum, and expectations of interest rate cuts may cool down further.

American Bankers Association (ABA) economists believe that the Federal Reserve will not achieve its inflation target until early 2026, but currently US interest rates are too high, and the Fed has room to cut interest rates. They expect the Federal Reserve to cut interest rates three times this year. The first time they cut interest rates was in June.

Regarding the intention to cut interest rates, Simona Mocuta, head of the ABA Economist Group and chief economist at State Street Global Advisor, said, “Don't think of these interest rate cuts as being made to make policies more relaxed; they actually weaken the restrictive nature of monetary policy. That's a huge difference.”

John Roberts (John Roberts), the former chief economist of the Federal Reserve, said that the current outlook for interest rate cuts depends on whether Fed officials view the higher-than-expected inflation data for January and February as “noise” or evidence of rising inflation — the former view would point to cutting interest rates 3 or even 4 times this year, while the latter view would point to cutting interest rates 2 times.

Recent statements from officials

At a press conference after the March 20 FOMC meeting, Powell said that January's higher-than-expected inflation data may be partly due to seasonal adjustments at the beginning of the year. Additionally, he said, “We expect core PCE to be below 0.3% in February. So... I'm considering these two things together, and I don't think they (the inflation data) really changed the overall situation, that is, inflation gradually fell to 2% on a tortuous path.”

Previously, Bostic “showed its hawks again” and is expected to cut interest rates only once this year. On Thursday, Federal Reserve Governor Waller said in his speech that a series of recent inflation data has heated up, making the Federal Reserve need more “evidence” to support interest rate cuts. Waller said that if inflation continues to strengthen, it may “reduce the total number of interest rate cuts or postpone interest rate cuts until the future.”

But there are dovish sounds too. Goulsby said, “Cutting interest rates three times this year is in line with my thoughts”; Cook said that the path to falling inflation is bumpy, and the Federal Reserve must act carefully in cutting interest rates to allow more time for inflation to slow down in some areas of the economy.

edit/lambor