Analysis: Tonight's PCE May Show Anomalies Not Seen in Decades, Another Hurdle for the Fed's Rate Cut Path

Odaily According to reports, at 8:30 PM Beijing time on Friday, the United States will release the January PCE Price Index. The market expects the PCE data to rise 2.9% year-on-year, consistent with the previous value, and increase 0.3% month-on-month, slowing down from last month's 0.4%. On the core side, the market expects the year-on-year growth rate of the core PCE Price Index to slightly accelerate to 3.1%, marking the largest increase since April 2024, with the month-on-month increase remaining unchanged at 0.4%. As the "ace" data of the U.S. Bureau of Economic Analysis, the PCE Price Index directly references CPI data for several price categories. Following the release of the latest CPI data, economists quickly revised upward their forecasts for the February core PCE Price Index, which will be released on April 9th. Several economists expect the index to rise 0.4% for the second consecutive month, while some are even mentally prepared for a larger increase.

The Trump administration has already made a big deal out of the CPI report, claiming that price pressures are under control and the Fed should cut interest rates significantly. Meanwhile, hawkish members within the Fed point to the PCE indicator to argue that the inflation rate is still a full percentage point higher than the 2% target set by policymakers. Economists at Bank of America also directly pointed out that while the CPI data is moderate, PCE inflation does not provide a stronger rationale for rate cuts, especially considering the upside risks from oil prices. This puts the Fed in a genuine dilemma. The softening of the labor market should have provided support for rate cuts, but if PCE remains persistently strong and energy and food price shocks from war arrive simultaneously, officials will find it difficult to find a reasonable excuse to restart the easing cycle. (Jin10)