Feb CPI and PPI surprised the market with higher-than-expected reads.
Today BOJ hiked rates for the first time in 17 years. Some see this as a sign that more hikes could come in the future. If that’s the case, does that mean they are hiking rates because they expect the Fed to remain on hold for longer?
What the Fed does will depend on the data, primarily inflation. In Fed’s mind inflation equals PCE.
As we are approaching Fed’s rate decision and Fed Chair Powell’s press conference tomorrow, it is pretty much clear they will not change rate tomorrow but Powell’s tone might depend on their expectations of Feb PCE numbers.
In Jan CPI and PPI were hotter than expected but PCE turned out to be much more benign. Will we see the same in Feb?
My Feb PCE estimates are…
+0.4% MoM and +2.5% YoY for headline PCE and +0.3% MoM and +2.8% YoY for core PCE. Here are my estimates unrounded:
If my estimates are correct, this shouldn’t pose much of a problem for the Fed tomorrow because this means that headline PCE would go up several bps YoY but core would continue to go down YoY.
A more detailed economic analysis is available in Marko’s Fed Report which is part of premium Arkomina Research. This report contains:
Detailed soft landing analysis including economic growth, labor market and inflation,
Analysis of the monetary policy lags including when they might start biting more seriously and
Forward looking view on the economy, including PCE (headline and core) trajectory in 2024
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