PCE Makes The Market Uneasy

The Fed’s preferred inflation metric, core personal consumption expenditures (PCE), came in hotter than expected in January. 🌡️

The core measure, which excludes food and fuel prices, rose 0.6% MoM and 4.7% YoY. The readings were 0.1% and 0.3% above expectations.

While longer-term progress is being made, the recent inflation readings show the choppiness of its downward progress. With the tight labor market, the Fed’s likely to keep rates higher for longer to avoid inflation reaccelerating.

This month’s data is concerning, so we’ll have to wait and see whether this is a blip on the radar or a signal that the inflation boogeyman could be back with a vengeance. 👻

Personal incomes rose 0.6% MoM in January, much below the 1.0% increase expected. On the other hand, personal spending rose 1.8% in the month, higher than the 1.3% increase expected. Investors closely watch these metrics because consumer spending is two-thirds of the U.S. economy, and wage growth is a crucial inflation driver.

Meanwhile, February’s Michigan Consumer Sentiment rose 3.2% to its highest level in about a year. Driving that was a reduction in fuel prices, which helped improve consumers’ outlook on inflation and the economy. 👍

U.S. new home sales also jumped to a 10-month high in January, to a seasonally adjusted annual rate of 670,000. The median new house price dropped 0.7% YoY to $427,500. New homes on the market were 439,000, down from 452,000 in December. 🏘️

Lastly, two Federal Reserve regional bank measures that map bond yields to the economic outlook are still placing a better-than-50% chance of a U.S. recession by next year. 🔮

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