Core PCE inflation may drop to 2.6%, but inflation stickiness still exists

According to market research, the core personal consumption expenditure (PCE) price index for January is expected to increase by 2.6% year-on-year, the lowest level since June last year. At the same time, the overall PCE inflation level may also decline year-on-year, further indicating that the US economy is experiencing a mild inflationary cooling. However, the sustained rise in prices of some goods and services has resulted in overall inflation still exceeding the 2% target set by the Federal Reserve, which may lead to the Fed maintaining a cautious monetary policy stance in the short term.

Although the slowdown in some wholesale prices has provided support for the cooling of PCE indicators, some high growth items in the Consumer Price Index (CPI) will still affect the performance of core PCE—— Market economists point out.

The Federal Reserve may keep interest rates unchanged, but the policy outlook remains uncertain

The current market generally expects that the Federal Reserve will not quickly cut interest rates in the short term, but will continue to observe inflation trends and economic growth. The outgoing Vice President of the Federal Reserve, Michael Barr, will give his final speech before the end of the month, while Richmond Fed President Tom Barkin and Cleveland Fed President Beth Hammack will also give their opinions this week.

Consumers' expectations for future inflation are rising, but this is only monthly data. We need to see longer-term data trends, "said Austan Goolsbee, President of the Chicago Federal Reserve, in an interview.

Market attention to upcoming economic data release

In addition to PCE data, the market will also focus on the upcoming release of US trade deficit, new home sales, consumer confidence index, and fourth quarter economic growth correction data. In December, the US trade deficit hit a historic high, which could become an important factor in future policy discussions. In addition, investors are closely monitoring the government's latest developments in trade concerns and the impact of policy changes on economic growth and market sentiment.

According to market research, the latest retail sales data has shown weakness, further exacerbating market concerns about a slowdown in US economic growth. In addition, changes in the real estate market have also become a focus of market observation, and changes in new home sales data may affect future consumer spending and inflation expectations.

Editor's viewpoint:

The decline in core PCE inflation rate undoubtedly brings some comfort to the market, but the existence of inflation stickiness still limits the policy adjustment space of the Federal Reserve. Overall, the Federal Reserve will continue to adopt a cautious attitude and wait for clearer economic data support before adjusting its interest rate policy. At the same time, the uncertainty of the global economic environment also requires the market to evaluate future economic trends more cautiously.