The Fed will release the US core PCE price index for February this week
The US core PCE price index is the Federal Reserve’s preferred inflation gauge, and a rebound from 2.6% to 2.8% would suggest persistent inflationary pressures. Here’s my analysis and prediction:
Key Factors to Consider:
- Recent Inflation Trends:
- January’s core PCE surprised to the upside (0.4% MoM), driven by sticky services inflation (housing, healthcare, transportation).
- If February sees another 0.3-0.4% MoM increase, the annualized figure could indeed rise to 2.8% YoY.
- Upward Pressure from:
- Strong wage growth (average hourly earnings still elevated).
- Housing costs (OER inflation remains high, though leading indicators suggest future easing).
- Energy prices (oil has been rising, which could indirectly affect core via transportation costs).
- Downward Risks:
- Some goods inflation (e.g., used cars, apparel) may continue cooling.
- Weakness in certain services (e.g., travel, recreation) could offset other increases.
Prediction:
- Most likely outcome: Core PCE rises to 2.7-2.8% YoY (0.3-0.4% MoM), aligning with market expectations.
- Bullish for the USD & Treasury yields if it prints 2.8%+, reinforcing the Fed’s cautious stance on rate cuts.
- Bearish risk (dovish surprise): A 2.6% hold or drop would require a soft MoM reading (0.2% or below), which seems unlikely given recent data.
Fed Implications:
- A 2.8% print would support the Fed’s current “wait-and-see” approach, likely delaying rate cuts until July or later.
- Powell may reiterate that progress on inflation is “bumpy”, pushing back against market dovishness.
Would you like a deeper breakdown of specific components (e.g., housing, healthcare) driving the forecast?
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