On the evening of April 26, the United States announced the core PCE price index for March, with an annual rate of 2.8%, unchanged for two consecutive months, but higher than market expectations of 2.7%.
After the GDP growth rate in the first quarter of the United States was lower than expected, the core PCE price index exceeded expectations, causing the market to worry that the US economy may enter stagflation, and the Fed's interest rate cut expectations have been hit hard one after another.
CME Group's Fed Watch tool shows that the probability of the Fed cutting rates for the first time has dropped across the board, with less than a 10% chance of a rate cut in June and around 50% in September, and the Fed may only cut rates once in the fourth quarter of this year.
Institutional Views on Inflation //
Although the release of U.S. inflation data dispelled the market's hopes that the Fed would cut interest rates soon, there were differences in the judgment of institutions on the Fed's future rate cuts.
Citibank believes that while the lack of a further slowdown in core inflation in March increases the likelihood of a rate cut in July rather than June, the market is wrong to price out of a rate cut altogether this year. That's because concerns about slowing growth will be a key factor for the Fed to consider cutting interest rates, while Q1 GDP details show waning support for fiscal stimulus and softer spending on goods. Therefore, Citi believes that the Fed will cut interest rates this summer, although inflation has not yet slowed down consistently.
Robert Pavlik, senior portfolio manager at Dakota Wealth, said the PCE inflation data was largely in line with expectations, so there were no negative surprises, which gave the market a bit of confidence. Although not entirely, it offset some of the concerns raised by the GDP data. The big prospect that the economy may stagflate and that the Fed will remain on hold until at least September has not changed. But the market may see a rate cut a little earlier, but I don't think that will happen. The Fed is not going to say we're heading in the right direction based on just one month of PCE data.
Barclays economist Pooja Sriram said that core personal consumption expenditure inflation is expected to be little changed in the coming months and will remain at 2.8% by the end of the year, which makes the Fed cut its benchmark interest rate only once this year and four times by 2025.
Matt Colyar, an economist at Moody's Analytics, is more optimistic, largely due to the slowdown in wage growth. He expects inflation to be close to the Fed's 2% target by the end of the year. He expects a rate cut in September and another in December.
U.S. stocks rebound strongly //
On the evening of April 26, the three major U.S. stock indexes collectively opened higher, as of the close, the Dow Jones index rose 0.40%, the Nasdaq index rose 2.03%, and the S&P 500 index rose 1.02%.
Treasury yields across maturities have declined. At the close, the 2-year Treasury yield fell 0.4 basis points to 5.002%, the 5-year Treasury yield fell 2.7 basis points to 4.695%, the 10-year Treasury yield fell 3.8 basis points to 4.669%, and the 30-year Treasury yield fell 3.5 basis points to 4.779%.
Next week's Fed interest rate decision is in the spotlight //
In the early morning of May 2, Beijing time, the Federal Reserve will announce its latest interest rate decision, and given the resilience of inflation, market institutions are more unanimously expected that the Fed will continue to keep the existing interest rate decision unchanged. Fed Chairman Jerome Powell has continued to take a more hawkish stance on the topic of interest rate cuts, and it will be interesting to see what kind of signal Powell will release at the press conference after the Fed's interest rate meeting next week.
(Wind integrates from Zhitong Finance, 21st Century Business Herald, China Securities Journal)
AMS (Asset Investment Management System)
Support for all-asset, cross-market, multi-currency
Free access to authoritative financial databases
Intelligently interconnects with various systems and automatically identifies all types of data
There are complete regulatory reporting solutions for various industries