Consumer expectations: Goolsbee at a Fed Listens event in Chicago. The Chicago Fed president downplayed a report that showed an increase in consumers’ expectations for future inflation, while conceding the figure “wasn’t a great number”. — Reuters
WASHINGTON: The Federal Reserve’s (Fed) preferred inflation metric is expected to cool to the slowest pace since June, but glacial progress on taming price pressures overall will keep policymakers cautious about lowering interest rates further.
The core personal consumption expenditures price index, which excludes often-volatile food and energy costs, probably rose 2.6% in the year through January in Commerce Department data due on Friday.
Overall personal consumer expenditure (PCE) inflation likely eased on an annual basis as well, according to the median estimate in a survey of economists.
The decline will probably come from categories that were relatively tame in separate wholesale inflation data that feeds through to the PCE, according to Bloomberg Economics.
But components that registered strong increases in the consumer price index (CPI) will keep the PCE running above the Fed’s 2% target.
That’s a big reason why officials prefer to keep rates on hold for the time being.
Michael Barr is due to speak for likely his last time as the central bank’s vice-chairman for supervision as he prepares to step down at the end of the month, while Richmond Fed president Tom Barkin and Cleveland’s Beth Hammack are among others scheduled to deliver comments.
Speaking last Sunday, Chicago Fed president Austan Goolsbee downplayed a report released last week – the gauge of longer-term inflation expectations – that showed an increase in consumers’ expectations for future inflation.
The figure “wasn’t a great number”, Goolsbee said in an interview on News Nation.
“But it’s only one month of data. You need at least two or three months for that to count.”
At the same time as Friday’s PCE report, the Commerce Department will release the latest goods-trade balance, which widened to a record in December and will be a key focus for President Donald Trump in his second term.
Other data due for release in the coming week include new-home sales, consumer confidence and the government’s second estimate of fourth quarter growth.
Meanwhile, investors will continue to watch Trump’s efforts on tariffs and Elon Musk’s push to slash the size of the federal government.
Bloomberg Economics said: “We expect personal consumption data to show personal spending contracted in January, while core PCE inflation likely slowed to 2.6% year-on-year.
“The Trump Trade, a bet on higher inflation, may look increasingly unattractive.”
In Canada, gross domestic product (GDP) data for the fourth quarter (4Q24) is likely to show an economy picking up steam following aggressive rate cuts, though that momentum may stall as the looming trade war weighs on business investment.
Elsewhere, Germany’s election, inflation in Australia and the biggest eurozone economies, and a rate cut in South Korea may be among the highlights.
The Bank of Korea (BoK) will be in the spotlight today when authorities decide whether to resume the rate cut cycle.
While many economists expect the BoK to ease in a bid to prop up domestic demand and get ahead of any tariff impact on exports, governor Rhee Chang-yong injected uncertainty earlier this month by saying it was by no means a done deal.
Tomorrow, the Bank of Thailand is seen holding its benchmark at 2.25%, though Bloomberg Economics expects pressure to continue for another cut later this year.
Fresh off its first rate cut since 2020, the Reserve Bank of Australia will receive consumer inflation data that’s forecast to show price gains accelerated marginally for a third month in January.
Japan publishes CPI data for Tokyo that may show inflation in the capital stayed elevated in February, while Singapore’s core CPI gains probably moderated to 1.5% in January.
Sri Lanka releases consumer price index statistics on Friday.
China reports preliminary purchasing managers index data for February on Saturday, with a key being the extent to which the manufacturing gauge recovers after a lunar-holiday dip in January.
Bloomberg Economics expects the data to reinforce the case for policy support.
Taiwan reports preliminary GDP figures for the 4Q24 tomorrow, and trade data are due during the week from the Philippines, South Korea, Sri Lanka, Thailand and Hong Kong.
In Europe, the aftermath of Sunday’s election in Germany will be the focus for investors.
The pro-business CDU/CSU bloc, led by Friedrich Merz, took the biggest vote share after a campaign that often dwelled upon the country’s dismal economic record under Chancellor Olaf Scholz.
Recent upticks in investor confidence and among purchasing managers likely came too late to help the incumbent.
Similarly, the closely-watched Ifo business sentiment report is expected to show the highest reading since October.
One of the main questions following the snap ballot will be the future of Germany’s so-called debt brake, a topic that’s preoccupied Bundesbank president Joachim Nagel for some time.
Reporters may quiz Nagel on that topic when he presents his institution’s annual report today.
He’s also likely to use the opportunity to comment on the European Central Bank. — Bloomberg
