Sun, June 16, 2024

Fed’s PCE Inflation Gauge and Market Moves

The Federal Reserve Rate Cut Demands Earlier by Investors, Dollar (fed's)

Quick Look:

  • Nasdaq rose over 1%, S&P 500 remained flat, and Dow Jones fell by over 2%, yet all major indexes neared record highs.
  • The Fed’s PCE Price Index, Q1 economic growth update, and consumer confidence data were pivotal.
  • Reports from Salesforce, Costco, Dollar General, and Best Buy highlighted corporate health and consumer trends.

During this eventful week, the Nasdaq Composite (^IXIC) showed resilience, rising by over 1%. Conversely, the S&P 500 (^GSPC) remained nearly flat, indicating a balanced market response to mixed economic signals. The Dow Jones Industrial Average (^DJI) experienced a decline of over 2%, underscoring the varied reactions across different market segments. Despite these fluctuations, all three major indexes hovered near record highs, reflecting underlying market strength.

Fed’s Inflation Gauge and Economic Growth Data Highlight Week

The week featured three pivotal economic data releases. The Fed’s preferred inflation gauge, scheduled for May 26, 2024, was highly anticipated as a barometer for future monetary policy decisions. Additionally, the second update on economic growth for Q1 and a fresh reading on consumer confidence provided further insights into the health of the US economy.

The earnings season drew to a close, with notable companies such as Salesforce (CRM), Costco (COST), Dollar General (DG), and Best Buy (BBY) reporting their financial results. These reports offered a snapshot of corporate health and consumer spending trends, critical factors for market analysts.

Fed’s Hawkish Tone and Rate Cut Speculation for 2024

Hotter-than-expected US economic output has led to a more hawkish tone from Fed officials. This sentiment has been revealed in the May meeting minutes. This development has shifted market expectations, predicting fewer than two yearly rate cuts. The debate over the timing of the first cut persists, with a significant split on whether it will occur by September. The CME FedWatch tool indicated a 50% chance of no cut in September, a change from the previous month’s 70%.

Goldman Sachs revised its forecast for the first Fed cut from July to September. David Mericle, Goldman’s chief US economist, noted that the timing of the first cut remains uncertain due to the strong economy, which reduces the urgency for the Fed to act. He suggested that while inflation expectations might improve by September, they would likely remain above the 2% target.

PCE Inflation Data and Market Volatility Outlook

Market volatility will persist as discussions around the Fed, inflation, and economic data dominate investor sentiment. Truist’s co-chief investment officer, Keith Lerner, remarked that these topics would be central to market movements in the near term, contributing to increased volatility.

The Bureau of Economic Analysis will publish the April reading of the PCE Price Index on May 31, 2024. This data will be closely watched after the Commerce Department’s April CPI reading. Besides, it showed easing headline price pressure and a fall in core price pressure to 3.6%.

Goldman Sachs Revises First Fed Cut Forecast to September

Interest rate traders continue to adjust their bets on the next Fed rate cut. The most probable timing seems to be September. The CME FedWatch tool’s current odds suggest a minimal chance of a cut in June or July, with a roughly 50.5% probability of an autumn reduction. This marks a significant shift from the approximately 72% odds seen last month, influenced by Goldman Sachs’ recent abandonment of its July rate cut forecast.

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