Watermelon from Mexico will be on display on March 5, 2025 on a shelf of a target store in Novato, California.
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On the surface, the February inflation data released some encouraging news this week. But below, there are some signs that the Fed may put aside interest rates.
and consumer The producer price indices are all lower than expected, which is not necessarily reflected in the main measures the Fed uses to measure inflation.
According to multiple Wall Street economists, policy makers are unlikely to get a lot of comfort on these numbers due to some Byzantine math and trends in several key areas under title readings.
“In short, inflation progress has begun in 2025,” Bank of America economist Stephen Juneau said in a note. “Our forecast for PCE inflation has exacerbated our view that inflation is unlikely to reduce the Fed this year, especially given that policy changes have increased changes in inflation. We think that unless activity data does weaken, we think policy rates will continue by the end of the year.”
At least for the time being, the market agrees. Traders have little chance of a FAP meeting next week, only a chance of a decrease of about 1 point in May. CME group calculation.
Although the Fed focuses on two Labor Statistics Bureaus of Measuring, it believes inflation is the Department of Commerce’s personal consumption expenditure price index.
Central bank officials believe that PCE reading, especially excluding the core of food and energy prices, can provide a broader understanding of price trends. The index also reflects more closely what consumers buy, not just the price of individual goods and services. For example, if the consumer replaces the beef, it will be indicated in PCE instead of CPI or PPI.
Most economists believe that the latest PCE reading, scheduled to be released later this month, will show that inflation is stable at 2.6% for the whole year at 2.6%, and may even raise a mark to a mark – away from the Fed’s 2% target.
Specifically, Thursday’s PPI reportThis is a measure of wholesale costs and is therefore considered an indicator of pipeline inflation, “Confirm our concerns that the mapping of inflation printing in February will be higher than expected inflation printing on the Fed’s preferred PCE inflation scale,” he said.
He added: “PCE inflation did not steadily decline early in the second quarter (second quarter), but instead looked to be bumpy and volatile.”
Sam Tombs, chief economist at PANTHEON macroeconomics, said some areas that have been lifted from PPI and PCE include higher hospital care and insurance prices and air transport prices.
“It will almost certainly bring the Fed to victory,” Combs wrote.
COMBS predicts that the core PCE reading rate in February will show an inflation rate of 2.8%, an increase of 0.2 percentage points from January. This is consistent with the rest of the street, as Bank of America and Citigroup inflation is 2.7%. Either way, it moves in the wrong direction. The Consumer Price Index showed a core inflation rate of 3.1%, the lowest since April 2021.
However, there may be some good news.
Despite expectations for a rebound starting in February, many forecasters believe inflation has retreated even as tariffs are affected.
Citigroup believes March will see a “more favorable” reading, and the company predicts the Fed’s continued call to resume its downgrade in May. Market pricing currently indicates a greater chance of cuts in June.
