The latest data reaffirms the dynamism of US consumption, and the Fed may need to be prepared to continue tackling inflation as economic growth expectations continue to rise.
2024 FOMC member and Richmond Fed President Barkin said on Friday that there are still price pressures in the U.S. economyIt's too early for the Fed to start cutting its benchmark interest rate.
Asked about the possibility of a rate cut this year, Barkin said in an interview with CNBC: "We'll see. "I still hope that inflation will come down, and if inflation normalizes, then there is a case for normalizing interest rates, but for me, everything depends on inflation progressing." ”
Barkin added that he still sees "wage and inflationary pressures" and that "we just received a high inflation report yesterday......On the goods front, inflation is stabilizing. In terms of services, the situation is not so rosy.
When asked about the PCE data, he said he didn't pay much attention to the January economic data, but noted that "the PCE data is in line with what I've heard about services inflation". Still, he believes headline inflation data is likely to decline in the coming months.
Torsten Slok, chief economist at Apollo Management, a U.S. private equity giant, said that the re-acceleration of the U.S. economy, coupled with rising underlying inflation, willPrevent the Fed from cutting interest rates in 2024.
Friday,U.S. Markit manufacturing PMI final value for February522. More than the expected and previous value of 512, the highest since July 2022, once again proves the strength of the U.S. economy, which could increase upward pressure on inflation.
Chris Williamson, chief business economist at S&P Global Market Intelligence, saidThe manufacturing sector is showing encouraging signsIt shows that it is emerging from the malaise that has been present for most of the past two years. After a long period of reducing inventories in order to cut costs, factories are now increasingly rebuilding inventory levels, driving up demand for inputs and pushing up production at a rate not seen since early 2022.
Williamson noted that there are still indicationsDemand for consumer goods strengthenedAs a result, companies are investing in more employees and equipment to set the stage for further production growth in the coming months, which is expected to drive a stronger and more sustainable recovery in the manufacturing economy. The shipping disruption and chain issues that occurred earlier this year have eased, reducing the pressure on investment to some extent, however, amid stronger customer demandEx-works** are picking up, which will be an area that policymakers will need to keep an eye on in the coming months.
"The bottom line is that the Fed will fight inflation for most of 2024," Srock wrote in a note to clients. As a result, the level of fixed income bond yields will remain high. ”
Srock said that following the Fed's shift in stance in DecemberThere was a "big jump" in US growth expectations and a easing of financial conditions, so the Fed is expected to hold its ground this year. He pointed to a tight labor market with high wage inflation, while manufacturing, services and leasing data are also trending higher.
Heading into 2023, the market expects a recession, but the reality is that the U.S. economy is not slowing down at all. Heading into 2024, the market expects six rate cuts by the Fed, but the Fed's pivot since December has provided a strong boost to economic growth. Srock said.
Srock's comments came after the Fed on Thursday released its preferred inflation gauge, the core personal consumption expenditures** index (PCE). The index showed that inflation in January was **04%, the fastest growth rate in the past year.
Swap contracts, which are currently tied to the Fed's future interest rate decisions, are priced in about three rate cuts this year, roughly in line with the Fed's own median expectations.
From former U.S. Treasury Secretary Summers to Wall Street strategists at Citigroup, a growing number of Fed watchers agree that the Fed will keep borrowing costs higher for longer and may even raise interest rates this year. In mid-February, Summers said in an interview that he thinks the Fed's next move is likely to be to raise interest rates, not cut them.