Source: Golden Ten Data
After the anti-inflation trend in the first quarter was thwarted, the report could at least provide some comfort to Federal Reserve officials.
According to data released on Friday, the index favored by the Federal Reserve to measure core inflation in the US slowed down in April. This is a step in the right direction for policymakers. Currently, they are seeking confidence that they can start cutting interest rates.
The US core PCE price index recorded an annual rate of 2.8% in April, the same as last month; the monthly rate recorded 0.2%, a new low since December 2023, lower than the expected 0.3%. In addition, the monthly rate of personal expenditure in the US recorded 0.2% in April, which is also a sharp drop from 0.8% in the previous month.
After the data was released, the three major indices rallied. Spot gold surged above the 2,350 mark, and the US dollar index fell nearly 20 points in the short term.
Judging from the results, this is clearly a positive report, and the overall and core data seem to be very much in line with expectations.
Greg Michalowski, an analyst at the financial website Forexlive, said that the first reaction to the data release was that inflation was slightly lower, with the core PCE rate falling to 0.2% per month (but the core PCE annual rate without rounding is 0.249%, which means that the monthly rate should be between 0.2% and 0.3%), and the actual monthly rate of personal consumption expenditure also fell to -0.1%. This indicates a slowdown in economic growth.
At the time of publication of the report, the market had been adjusting to the prospect that the Federal Reserve would keep interest rates longer than initially feared.
“Federal Reserve microphone” Nick Timiraos pointed out that today's PCE data is not expected to change the Fed's recent “wait and see” attitude.
After the anti-inflation trend was thwarted in the first quarter, the report should provide some comfort to Federal Reserve officials about the path of inflation. According to CME's US Federal Reserve observation tool, investors expect the possibility that the Fed will cut interest rates for the first time in September is about 50%, and swap traders still expect the Fed to cut interest rates at least once this year.
Federal Reserve officials have repeatedly stated that they are waiting for greater confidence in falling inflation before they are fit to cut interest rates. On Thursday, New York Federal Reserve Chairman Williams said he believes inflation will start falling again in the second half of 2024.
In a speech at the New York Economic Club, Williams said, “I think some recent inflation data mainly represents a reversal of abnormally low data in the second half of last year, rather than a break in the overall downward direction of inflation.”
Brian Jacobson, chief economist at Annex Wealth Management, believes that both revenue and expenditure data are slightly weaker than expected. Personal disposable income, adjusted for inflation, has remained flat since February. The Federal Reserve can't just focus on inflation. The way consumers spend money is changing rapidly. In the past, they spent a lot of money as if tomorrow didn't exist, but now they have to spend even a penny to save money.
edit/lambor