PCE will ignite a "key battle" at 20:30 tonight
The core PCE price index, the "most favored" inflation indicator of the Federal Reserve, will be released at 20:30 tonight. The market expects it to remain stable compared with last month, once again highlighting the stagnation of anti-inflation progress. After yesterday's GDP and PCE data were both revised down, can tonight's data verify the slowdown in consumer spending and increase market expectations for interest rate cuts?
The overall PCE in the United States is expected to rise by 0.3% month-on-month (previous value: 0.3%), and the annual rate will remain unchanged at 2.7% in April; the core PCE is expected to rise by 0.3% month-on-month (previous value: 0.3%), and the annual rate will remain unchanged at 2.8%, but some analysts believe that the core PCE monthly and annual rates may slow slightly to 0.2% and 2.7%, respectively. It is worth noting that even if the core PCE annual rate is only slightly lower than expected, it will reach the lowest level since April 2021.
"We don't expect any big upside or downside surprises in Friday's PCE data, as most recent economic data suggest the economy has settled into a long-term plateau, neither overheating nor cooling," said Carol Schleif, chief investment officer at BMO Family Office. "That said, it will still be a bumpy landing to reach the Fed's 2% target," said Goldman Sachs.
Based on CPI, PPI and import prices, "we estimate core PCE rose 0.26% month-over-month, well below the 0.36% average of the previous three months, but if sustained in May and June, it may not be enough for the Fed to cut rates in July," Goldman Sachs said. Still, Goldman Sachs estimates that the market-based core PCE index (which Fed Chairman Powell mentioned in recent speeches) rose just 0.18%, a pace Goldman Sachs said would need to be sustained to qualify for a July rate cut. Goldman Sachs recently pushed back its forecast for the first Fed rate cut from July to September.
