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PCE Numbers Display Inflation Behaving: Core 4.6% YoY

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The biggest economic report remaining in calendar Q1 and the month of March — easy to assert; it’s also the last day for both — is out today: the grand, sweeping Personal Consumption Expenditure (PCE) index for February. It’s one of the biggest economic prints referred to by the Fed as they determine forward interest rates. Thus, the takeaway here is that inflation continues to moderate… slowly.

Headline Personal Income came in at +0.3%, a tick better than the +0.2% expected but less than double the originally posted +0.6% a month ago. In fact, the month-ago PCE report overall was hotter than expected, pushing inflation data in the wrong direction and leading to speculation the Fed might need to raise 50 basis points (bps) at its mid-March meeting. The regional bank crisis wiped that out, but this metric now coming back down is a positive development for taming inflation.

Personal Spending last month swung to a negative -0.1% from a downwardly revised +1.5% the previous month. Again, while the American consumer continues to drive the bus for the economy, last month it would seem they made fewer stops to purchase goods and services. That’s perhaps the most clear way for consumers to help contain inflation themselves: refuse to purchase what is deemed to expensive. We can wait until costs come down.

Headline PCE also came in half what the previous print showed: +0.3% for February from +0.6% (unrevised) for January. Same with Core PCE (stripping out volatile food and energy prices): +0.3% from +0.6% the previous month, and lower than the +0.4% analysts were expecting. The story is the same here: lower PCE relates to lower inflation — it’s being fought on the consumer level.

Year-over-year PCE figures are where analysts and economists use short-hand in discussing the temperature of the economy: headline reached +5.0%, 30 bps lower than the downwardly revised +5.3% from January — positive inflation-fighting in both reads. Core PCE year over year struck its lowest level in 16 months to +4.6%, 10 bps lower than the unrevised +4.7% the previous month. Because these numbers take out volatile price points, they tend to move more slowly. That said, we’re back in the right direction after a hot January.

Will this be enough for the Fed to consider pausing on interest rate hikes? On its own, probably not. The good news here is: it doesn’t have to be. The next Fed meeting isn’t until the first week of May, before which we’ll see CPI/PPI data, a new monthly Employment Situation and the early phases of Q1 earnings season. Near-term, pre-market futures have blossomed somewhat on the news: the Dow is +130 points, the S&P 500 +15 and the Nasdaq +35 points.

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