On Thursday the financial markets get a new monthly PCE inflation report. The PCE, Personal Consumption Expenditures index, is the Federal Reserve’s favorite inflation measure.
And Thursday’s report on January inflation could be bad news for the financial markets,
Economists expect annual “core” PCE–which excludes the volatile categories of food and energy—rose at a 2.4% rate in January. Over the prior month, economists project “core” PCE rose by 0.4%.
A 0.4% month to month increase would be a significant increase from the 0.2% month to month increase reported for December. A month to month increase of that size would bring the six-month and three-month annualized inflation numbers, which had been tracking below the Fed’s 2% target, back above 2%.
Numbers like those expected on Thursday would continue to add to fears that inflation is proving stickier than hoped. And that would, in turn, lead to further questions on when the Fed might start cutting interest rates. The financial markets are close to writing off an interest rate cut at the Fed’s May 1 meeting–with 73.8% odds of no cut, according to the CME FedWatch Tool.
Watch how odds shift, if they do, for the June meeting, On Friday thee FedFunds Future market was pricing in a 66.9% chance of a cut at that meeting.
