Source: Zhitong Finance
The release of PCE data in the US for April attracted much attention. It may mark another solid step on the way for the Federal Reserve to achieve the 2% inflation target.
At 20:30 Beijing time on May 31 (8:30 a.m. EST), the release of the US personal consumption expenditure (PCE) data for April attracted much attention. It may mark another solid step on the way for the Federal Reserve to achieve the 2% inflation target. According to Dow Jones's forecast for PCE price indicators, the overall inflation rate for April is expected to increase by 2.7% year-on-year. If the forecast comes true, the core inflation rate (excluding the impact of food and energy costs) will decline slightly, while the overall inflation rate will remain stable.
Economists are keeping an eye on every slight change in annual and monthly inflation, and they expect core inflation to slow to 0.2% in April. This is an indication that at least some relief from consumer price pressure has been achieved. These data are not only critical for market participants, but also provide policymakers with an important basis for policy adjustments, indicating that the Federal Reserve's efforts to control inflation may be paying off.
Carol Schleif (Carol Schleif), chief investment officer at BMO Family Office, said: “We don't expect Friday's PCE data to fluctuate significantly because most recent economic indicators show that the US economy is in a long-term stable stage of development, neither too hot nor too cold. Despite this, the road to achieving the Federal Reserve's 2% inflation target is still tortuous.”
The task of controlling inflation is becoming increasingly difficult. Using a variety of data analysis methods, the Federal Reserve recently introduced so-called “supercore” indicators to measure long-term trends by studying the costs of services other than food, energy, and housing.
However, policymakers' expectations that housing inflation will cool down this year have largely fallen short, adding new complexity to the policy debate. At the same time, although the public is paying more attention to the Department of Labor's Consumer Price Index (CPI), which shows a higher trend in inflation, the Federal Reserve favors individual consumption expenditure indicators. The US CPI rose 3.4% year on year in April, and the core CPI rose 3.6% year on year, all far higher than the Federal Reserve's target.
The reason the Federal Reserve favors the PCE index is because it can reflect changes in consumer behavior, such as when consumers will choose cheaper products to replace more expensive products. In theory, this method can more accurately reflect the actual cost of living. Federal Reserve officials are particularly concerned about the core price because it is a more reliable indicator of long-term inflation.
Data released by the Department of Commerce on Thursday showed that despite moderation, the PCE price index that the Federal Reserve is concerned about grew 3.3% quarterly in the first quarter, slightly lower than the initial forecast. The core PCE price index, which excludes food and energy, rose 3.6%, slightly down 0.1 percentage points from the initial 3.7%, but there is still a significant increase compared to 2% in the fourth quarter of last year.
Although these figures are still far below the Federal Reserve's target, the market is extremely sensitive to inflation trends, particularly how they reflect the central bank's interest rate policy intentions. According to the Chicago Mercantile Exchange Group's FedWatch futures price index, the market currently expects interest rates to be cut only once this year, probably in November.
Matthew Ryan (Matthew Ryan), head of market strategy at Ebury, a global financial services company, said: “Economists are optimistic that the monthly reading in this report will fall below the CPI. Any disappointment may lead the market to further consider the prospects of cutting interest rates in 2024.”
New York Federal Reserve Chairman John Williams (John Williams), a member of the Federal Reserve's “troika,” tied with Chairman Jerome Powell (Jerome Powell) and Vice Chairman Philip Jefferson (Philip Jefferson), said on Thursday that personal consumption expenditure (PCE) inflation is expected to continue to decline slightly, falling to about 2.5% by the end of this year, and eventually reaching 2% in 2026.
Williams said, “There is a large amount of dynamic supply and increasing productivity in our economy. That's what I know is happening.” He added, “How this situation will develop in the future is always a big question mark.”
Overall, despite the slow pace of decline in the inflation rate, the market and policymakers are cautiously optimistic about this progress. Federal Reserve officials will continue to pay close attention to inflation data and adjust their monetary policy based on this in order to achieve steady economic growth and price stability.
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