Odaily Planet Daily report: At 8:30 PM Beijing time on Friday evening, the United States will release the January PCE price index. Markets expect the PCE data to rise 2.9% year-over-year, matching the prior reading, and increase 0.3% month-over-month, a slight slowdown from last month’s 0.4%. On a core basis, markets anticipate the core PCE price index to accelerate slightly to a 3.1% year-over-year gain—the largest increase since April 2024—while the month-over-month increase remains unchanged at 0.4%. As the “flagship” data from the U.S. Bureau of Economic Analysis, the PCE price index directly incorporates CPI data in several price categories. Following the latest CPI release, economists quickly raised their forecasts for the February core PCE price index, due to be published on April 9. Several economists expect the index to rise 0.4% for a second consecutive month, while others are prepared for an even larger increase.
The Trump administration has been heavily citing the CPI report to claim that price pressures are under control and that the Fed should cut rates significantly. Meanwhile, dovish officials within the Fed point to the PCE index, arguing that inflation remains a full percentage point above the policymakers’ 2% target. Bank of America economists have directly stated that while CPI data has been mild, PCE inflation does not provide a stronger case for rate cuts, especially given upward risks from oil prices. This has placed the Fed in a genuine bind. A softening labor market should support rate cuts, but if PCE remains strong and energy and food price shocks from war occur simultaneously, policymakers will struggle to find a justifiable reason to restart an easing cycle. (Jin10)