Jun 2024 PCE Inflation Estimates

In Q1 2024 CPI was higher than expected. Then in Apr it came in line, but in May and Jun it came notably cooler than expected.

Jun CPI was much cooler than the market expected, but it came perfectly in line with my estimates (to the 2nd decimal point: -0.06% MoM for headline and +0.06% MoM for core CPI):

PPI has been rather volatile YTD. The latest Jun read was hotter than expected, while some prior months (like May) showed an unexpected MoM deflation for headline PPI. Before May, PPI was mostly higher than expected initially, although Mar was revised much lower and is now negative for both headline (-0.07% MoM) and core PPI (-0.01% MoM). Headline PPI had MoM deflation in 2 of the last 4 months.

Unlike CPI and PPI which were more volatile and mostly higher than expected in the first months of 2024, PCE mostly came in line with expectations YTD with even 2 beats for core PCE in Feb and Apr.

CPI came in cooler than expected, while PPI came in hotter than expected in Jun. What does that mean for the Jun PCE inflation?

More importantly, what will Jun PCE mean for the Fed?

My Jun PCE estimates are…

• Headline PCE

  • 0.1% MoM and +2.5% YoY

• Core PCE

  • +0.1% MoM and +2.6% YoY

My unrounded estimates are:

If my estimates are correct, both headline and core PCE would already be notably lower than the levels Fed officials think they will end 2024 at. Worth to remember that after Jun, we will still have 6 more months to go.

This may give Fed officials enough confidence to start preparing themselves for a Sep rate cut, provided that other important data cooperates. The question of when we will see the first rate cut (Jul, Sep, Nov or Dec) may be less important than the question what will the Fed do after that first rate cut. Will there be just one rate cut followed by some pauses (like the ECB did recently and like the Fed did in the mid-1990s)? Or there will be a mechanical cutting regime which includes a 25 bps cut at every or every other meeting? Or the Fed will accelerate rate cuts at every following meeting?

The answer to this depends on the forward PCE trajectory and forward unemployment rate trajectory.

NOTICE: +0.24% MoM for core May revision is a typo. Should be 0.10% MoM.

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PCE and unemployment rate forward trajectories are part of Marko’s Fed Report which, among other things, contains:

1. Analysis of what the Fed has done so far

2. Comprehensive analysis of the economy giving the answer to which landing we are in

3. Analysis of monetary policy lags

4. PCE forward trajectory (headline and core until the end of Q1 2025)

5. Unemployment rate forward trajectory (until the end of Q1 2025)

6. When will the Fed likely start cutting rates and why

7. What will the Fed likely do after the first cut and why

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