Testing the Waters

Macro Markets

PCE

After another lower CPI reported a few weeks ago, we are now eyeing the PCE report as the next big data point. While PCE is less significant than CPI, the Fed still considers the Core PCE to be the dominant inflation measure. This is because the PCE is a much larger area of measure covered and gauges the cost to Americans for the price of goods. Specifically, we will look for the Core quarter-over-quarter final and the year-over-year final metric as the values we want to see a decrease. Previously, the QoQ PCE was 4.7%, and YoY was 4.7%, with an expected value of 4.3% and 4.7%, respectively.

These forecasted results are considered somewhat disappointing, as inflation continues to be sticky in this environment. As mentioned before, Jerome Powell wants to see inflation come down to 2.0%. However, with the banking crisis that has taken place over the last few weeks, the job of the Fed has become much harder, as there is pressure to bail out banks, increase the budget sheet, and continue more quantitative easing to save the economy. This level of money injection would create much further lingering inflationary tendencies. On the bright side, we are still coming down from the peak of 6.0% PCE QoQ reading set in Q2 in 2021 and 5.4% YoY in early January 2022.

The biggest question moving forward is, “will the rate hikes that have been put in place take care of the inflation?” As we move into recession territory, the decision-making by the Fed will change, potentially preventing inflation from coming down further. Currently, the Fed discount window is below the value of the 2-year treasury note yield. Historically, when this occurs, we see a pivot and then cutting to proceed shortly after. If the Fed fund rate does not stay above the CPI levels for long enough, inflation will rear its ugly head back into existence, and inflation will look much more like how it did in the 1980s.

Become a member today and read the complete newsletter…

Have a friend? Share the Weekly Wizdom Newsletter and win exciting perks and rewards but most importantly you’ll make your friend smarter, Kudos to you!

Disclaimer Wizard of Soho LLC and Weekly Wizdom publish financial information based on research and opinion. We are not investment advisors, and we do not provide personalized, individualized, or tailored investment advice, nor do we provide legal advice or information. The publisher does not guarantee the accuracy of the information provided on this page. All statements and expressions present are based on the author's or paid advertiser's opinion and research. No opinion, directly or indirectly, is an offer or solicitation to buy or sell the securities or financial instruments mentioned. As news is ever-changing, the opinions included should not be taken as specific advice on the merits of any investment decision. Investors should pursue their own investigation and review of publicly available information to make decisions regarding the prospects of any company discussed. Any projections, market outlooks, or estimates herein are forward-looking and inherently unreliable. They are based on assumptions and should not be construed to be indicative of actual events that will occur. Contrarily, other events that were not considered may occur and significantly affect the returns or performance of the securities discussed herein. The information provided is based on matters as they exist on the date of preparation and do not consider future dates. As a result, the publisher undertakes no obligation to correct, update, or revise the material in this document or provide any additional information. The publisher, its affiliates, and clients may currently or foreseeably have long or short positions in the securities of the companies mentioned herein. They may therefore profit from fluctuations in the trading price of the securities. There is, however, no guarantee that such persons will maintain these positions. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile, or any other means is illegal and punishable. Neither the publisher nor its affiliates accept any liability for any direct or consequential loss arising from any use of the information contained herein. By using the site, or any affiliated social media account, you are giving your consent and agreeing to this disclaimer and our terms of use.