Fed’s preferred inflation measure remains high

Source: www.tradingview.com

United States core PCE (which excludes food and energy) printed at 4.6% y/y and the previous number was revised higher to 4.7% y/y. The annual change has a lower peak (LP) followed by a lower trough (LT) and its rate of change (ROC) is on the deceleration side of zero (blue rectangle). This needs to maintain for the disinflation process to unfold towards the Fed's inflation target of 2%. However, the monthly core PCE came in at 0.3%, which is 3.66% annualised – still high and above target.

The current inflation rate is still too high, but the tightening of lending conditions due to banking stresses will likley be more significant on slowing the economy than the expected 25bps hike on Wednesday. The economy is slowing down with advance GDP missing the 2% forecast yesterday, printing at 1.1%. In a previous article we wrote that consumption, the biggest component of GDP, is looking fragile. Thus, although the possibility of further interest rate hikes is not ruled out, the necessity of implementing them is debatable.

The Bureau of Economic Analysis reported that the reduction in headline PCE in March from February was due to a decline of 0.4% in goods spending, partially offset by a 0.1% increase in services spending.

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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