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The market has been steadily pricing in more Fed cuts this year on creeping economic weakness but it’s unclear if the Fed will have the ability to cut rates given stubborn inflation (pricing is currently at 61.5 bps for this year).
Today’s PCE report will offer up some important evidence on that front. The CPI report for January was hot but the details of the PPI report suggested that PCE inflation wouldn’t be so bad. The consensus on core is +0.3% but for those who forecast to two digits it’s +0.27% which will put the y/y reading at +2.6%. Headline is forecast at +0.31% and +2.5% y/y.
After GDP yesterday, I’m fearful that some upward revisions to prior data will push up that y/y figure even if the m/m number is low.
North of the border, Canadian GDP is due and expected at +1.8% q/q annualized in Q4. Momentum in December will be watched closely with +0.3% expected.