US core inflation picks up in early 2024
The path of inflation returning to the Fed's 2% target remains "bumpy".
The Fed’s preferred measure of underlying inflation – the core PCE deflator – increased by 0.3% in February, rounding up to be in line with market expectations, following a 0.5% rise in January (rounding up from an initial estimate of 0.4%).
The estimated trend shows annualised monthly inflation picking up from around 2% late last year to about 3½%, echoing the recent re-acceleration in the more timely core CPI (note that the trend estimates can be revised as more data become available).
The pick-up in inflation has been broadly based, in that the estimated trend of the trimmed mean PCE deflator shows annualised monthly growth picking up from 2½% last year to 3¾%.
Fed Chair Powell said that the February data were in line with expectations, repeating that the Fed needed more confidence before it reduced interest rates, where the return of inflation to the 2% target could be “bumpy” and the strength in activity meant that the Fed “[did not] need to be in a hurry to cut”.
Powell emphasised that the Fed had a “steady hand”, repeating how the FOMC did not overreact to the progress made on inflation late last year.
The next FOMC meeting is on 30 Apr/1 May, but the more likely window for the first cut is still the 11-12 June meeting, which is when the FOMC also updates its economic and financial outlook.
The FOMC then meets twice more before the 5 November presidential election, once immediately afterwards, and then again in December.
The Fed always stresses its political independence, but the election should see it act more cautiously than usual given Trump’s hostility towards the central bank, refraining from offering anything more than tepid guidance and emphasising that decisions will be data dependent.
As for consumer spending, real expenditure rebounded in
February, up 0.4% after a 0.2% decline in January. The estimated trend in
spending shows steady annualised monthly growth of about 3%.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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