Source: Comprehensive Gold Ten Data, Wall Street News, etc.
Today's disappointing inflation figures are largely to be expected; the possibility that the Federal Reserve will keep interest rates unchanged until the end of the year has increased substantially compared to the beginning of the year.
On Friday, the Federal Reserve's favorite inflation indicator continued to be high, which may further heighten concerns about continued price pressure, thereby weakening hopes that the Fed will cut interest rates soon.
The US core PCE price index remained at 2.8% for the second month in a row, higher than market expectations of 2.7%; it recorded a monthly rate of 0.3%, in line with expectations of 0.3%, the same as the previous value of 0.3%. The overall US PCE index for March also rose 0.3% month-on-month compared to February, and 2.7% year-on-year. The monthly rate of personal spending in the US in March was 0.8%, higher than the forecast of 0.6% and the previous value of 0.8%.
Given that the US GDP report on Thursday showed that the core PCE rose by 3.7% per annum in the first quarter, higher than the forecast of 3.4%, the disappointing inflation data for March was largely to be expected. As a result, the market may have eliminated some potential downside risks through the GDP data released yesterday, which may have reduced the negative effects of this data.
Although US inflation rose moderately in March, the market still does not expect the Federal Reserve to cut interest rates until September. The Federal Reserve is expected to keep interest rates unchanged next week. Over time, 0.2% month-on-month inflation data is necessary to bring inflation back to target levels.
Overall, the latest PCE data will not promote the Fed's interest rate hike, but it certainly won't shake the view that “the Federal Reserve will maintain high interest rates for a long time.”
As the job market and inflation data continue to rise unexpectedly this year, the financial market's expectations for the Fed to cut interest rates have been greatly reduced. From when the Fed was initially expected to cut interest rates for the first time in March, until later, when interest rate cuts were postponed until June, and now until September. According to CME data, investors currently expect the possibility that the Federal Reserve will keep interest rates unchanged until the end of the year is close to 20%. A month ago, that possibility was less than 1%.
After the release of three consecutive CPI reports that exceeded expectations, Federal Reserve Chairman Powell's attitude also changed. He said “it may take longer than expected” to be convinced that inflation is continuing to move towards the Federal Reserve's goals.
Some economists still believe that as falling rents for new tenants begin to affect renewal of existing leases, and slowing wage growth dampens the rise in service costs, inflation may return quite quickly to the previous downward trend.
However, a strong job market is still supporting consumer spending, and strong demand for products and services may put upward pressure on prices. Household spending in the US continued to rise 0.8% in March, outpacing personal income (up 0.5% in March). Since last spring, average wages have been growing faster than the rate of inflation, increasing household purchasing power.
What do analysts think?
Robert Pavlik, senior portfolio manager at Dakota Wealth, said:
The PCE inflation data was basically in line with expectations, so there were no negative surprises. This gave the market some confidence, which offset some of the concerns raised by yesterday's GDP data. However, there is no change in the general outlook that the economy may experience stagflation and that the Federal Reserve will remain on hold until at least September. Although the market may see interest rate cuts a little earlier, I don't think this will happen. The Federal Reserve is not going to think things are moving in the right direction based on just one month's PCE data.
Bruce Kasman, J.P. Morgan's chief economist, said:
Here are stories about the economy maintaining good momentum with high interest rates and stories about continuing inflationary pressure.” “Although I don't think it is correct to talk about this issue from the perspective of the Federal Reserve's tightening, I think it is very unlikely that the Fed will relax its policy in the short term.
Financial consulting firm DeVere said:
Tonight's PCE data is another blow to the Federal Reserve and its fight against inflation. As the US economy continues to be strong, the labor market is strong, PPI and CPI rises, as well as today's personal consumption spending, and other recent data, we are now revising our rate cut forecasts. We believe that cautious US Federal Reserve officials will need several months of continuous evidence that inflation has indeed returned to the 2% target before moving to monetary policy. The current risk is that the risk that the Federal Reserve will not cut interest rates until 2025 is increasing.
Art Hogan, chief market strategist at Riley Wealth, said:
The PCE data is very much in line with expectations, which will give the market a sigh of relief. What I want to say is that there was a lot of noise in yesterday's GDP data. The potential components of it do show that inflation is stubborn, and today's data is very much in line with expectations, indicating that the Federal Reserve has made progress in terms of inflation. Inflation appears to have stagnated at current levels, but the good news is that it doesn't seem to be picking up again. Therefore, this will allow investors to step back and breathe a sigh of relief.
Editor/Jeffrey