The Fed's projected "bumpy inflation outlook" is likely to get even more bumpy this week.
Earlier, higher-than-expected inflation data had led some Feds** to describe the road to the 2% inflation target as "bumpy." And the US PCE price index for January, which will be released on Thursday morning, will determine whether this outlook will become more bumpy.
Economists expect the Fed to favor an inflation gaugeThat is, the core PCE price index, which excludes the volatile food and energy**, would have risen by 28%, slightly lower than December 2 last year9% year-on-year increase. But economists expect a month-on-month increase of 04%, up from 02%。
This could raise concerns that inflation is not coming down fast enough。According to Bank of America,It could also bring six- and three-month annualized inflation back above the Fed's 2% target.
The new PCE data is important for investors as they try to determine how quickly the Fed will begin easing monetary policy, after the Fed made its most aggressive move since the '80s to cool inflation.
At the beginning of the year, the market expected the Fed to cut interest rates six times this year, starting in March, but after cautious comments from Fed Chair Jerome Powell and others**, as well as higher-than-expected inflation dataMarkets are now pricing in the Fed to cut rates starting in June, with only three cuts this year.
The CPI and PPI data for January both exceeded economists' expectations, said Wilmer Stith, bond portfolio manager at Wilmington TrustBecause there is a correlation between PPI and PCE, it is "likely" that the data released on Thursday will show that the pace of growth in PCE is "indeed higher".
Stith added that if the PCE is indeed high and the US jobs data continues to beat expectations, the Fed may decide to keep interest rates high for longer. "I don't think they're going to raise interest rates,But the Fed is likely to 'back off' a bit and scale back from three to two
Several Feds** last week cited recent inflation data as evidence that the path down to 2% would be".It's bumpyJefferson, the Fed's vice chair, and Barr, the Fed's vice chair for supervision, both used the term.
Fed Governor Waller stressed that the Fed should take its time in cutting interest rates. "I need to look at inflation data for at least a few more months before I can tell if the January inflation data is a speed bump or a pothole.
He said he still expects a rate cut to happen "sometime this year," but the FOMC "can wait a little longer." "What's the hurry? ”
In the days leading up to the PCE's release, the Fed** issued more warnings this week
Fed Governor Bowman said Tuesday that the Fed is not yet at the time to start cutting interest rates, and cutting rates too quickly could lead to the Fed needing to raise rates subsequently. She added that she was also willing to raise interest rates if inflation progress stalled or reversed.
Kansas City Fed President Jeff Schmid said Monday night in his first speech since taking office last year, "When it comes to excessively high inflation, I believe we're not out of the woods." ”
So far, he saidThe reason for the decline in inflation is the decline in goods, as the chain has recovered from the trauma of the pandemic。He said he believes services that account for two-thirds of consumer spending will continue to grow faster amid a strong job market and faster wage growth.
"With inflation above target and a tight labor market, demand is showing considerable momentum," he saidThere is no need for a pre-emptive adjustment of policy positions
Matt Luzzetti, chief U.S. economist at Deutsche Bank**, said he expects the PCE price index to rise 36 basis points month-on-month in January, while year-on-year growth slows to 28%。He said
"With stronger-than-expected data released at the start of the year, many** views on the imminent rate cut sounded more cautious. These data reinforce my confidence in our benchmark view that the first rate cut will take place at the June meeting, not before that. ”