Mar 2024 PCE Estimate

The market was unpleasantly surprised by the Mar CPI which came a notch above expectations for both headline and core MoM and YoY. This is actually a 3rd month in a row of higher-than-expected CPI reads.

Then, when everybody was bracing for Mar PPI to miss expectations as well, it came cooler than expected following 2 higher-than-expected PPI reads in Jan and Feb.

As a result of the 3 higher-than-expected CPI reads in a row, the market lowered its expectations of Fed cuts in 2024 from 3 to 2. Some have suggested the Fed shouldn’t cut at all because of the recent CPI data. There are even some out-of-consensus individuals (like Larry Summers) who suggested the Fed should actually hike, not cut rates.

People who suggest no cuts or even hikes in 2024 have often cited current headline CPI at 3.5% YoY and core CPI at 3.8% YoY being well above the Fed’s target. A common misconception is that the Fed is targeting CPI inflation at 2%. Actually, they are targeting PCE inflation at 2%. Current (Feb) headline PCE at +2.5% and core PCE at +2.8% are much closer to their target than CPI figures suggest. So, PCE inflation is more important to the Fed than CPI which puts even more weight on the upcoming Mar PCE.

In Jan and Feb PCE figures were more favorable than the CPI and PPI.

Will we see the same in Mar?

My Mar PCE estimates are…