As investors keenly await the release of the Federal Reserve’s preferred inflation gauge on Friday, the Personal Consumption Expenditures (PCE) report is poised to be a significant market mover. Analysts anticipate that a stronger core PCE could further bolster the US Dollar.
Recent lackluster US economic data has reinforced speculation that the Fed may cut interest rates this year to stave off a more significant economic slowdown. The US government revised down personal spending to an annualized 1.5% in the first quarter. Additionally, separate releases revealed declines in orders and shipments of certain business equipment, a weakening job market, and a slump in homebuying. These indicators suggest a deceleration in both consumer and business activity in the latter half of 2024, potentially providing the Fed with the leeway to commence rate cuts later this year.
Fed Bank of Atlanta President Raphael Bostic reiterated his expectation of one rate reduction this year, citing ongoing signs of declining inflation. His forecast aligns with the broader sentiment within the Federal Open Market Committee (FOMC). Swaps markets are currently pricing in approximately 45 basis points of easing in 2024, which translates to fewer than two rate cuts.
Analysts at Saracen Markets forecast that Friday’s data will show the Fed’s preferred measure of underlying inflation slowing to an annualized rate of 2.6% last month, down from 2.8%. While this would mark the lowest reading since March 2021, it remains above the Fed’s 2% inflation target, indicating that the path to price stability is ongoing but gradual.