US core PCE inflation Preview: Federal Reserve preferred gauge set to decelerate on month in February
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The core Personal Consumption Expenditures (PCE) Price Index is set to rise 0.3% MoM and 2.8% YoY in February. Markets see a strong chance of the Federal Reserve lowering the policy rate by 25 basis points in June. The revised Summary of Projections showed that policymakers upwardly revised end-2024 core PCE forecast to 2.6% from 2.4%. The core PCE Price Index, which excludes volatile food and energy prices, is forecast to rise 0.3% on a monthly basis in February, at a slightly softer pace than the 0.4% increase recorded in January. The Federal Reserve’s revised Summary of Economic Projections (SEP) showed that policymakers expect the annual core PCE inflation to be at 2.6% at the end of 2024, up from the 2.4% forecast seen in the December SEP. The PCE inflation data is slated for release at 12:30 GMT. The monthly core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly core PCE figure. Stronger-than-forecast Consumer Price Index (CPI) and Producer Price Index (PPI) readings in January and February, combined with data that pointed to tight labor market conditions, caused markets to lean toward a delay in the Fed policy pivot from May to June. Nevertheless, the dot plot showed that policymakers still project the US central bank to cut the policy rate by a total of 75 basis points (bps) in 2024. Hence, markets are pricing in a more than 60% chance that the Fed will lower the policy rate by 25 bps to 5%-5.25% in June, according to the CME FedWatch Tool.
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