Yahoo Finance Fed's preferred inflation gauge – What to know in markets Friday
Friday’s economic data docket will provide investors with further insight into the state of inflation in the U.S. economy.
The Bureau of Economic Analysis will report data for April personal income, personal spending and personal consumption expenditures Friday morning at 8:30 a.m. ET.
Personal consumption expenditures, or PCE, provides a gauge of price changes in consumer goods and services, with the “core” measure excluding volatile food and energy prices serving as the Federal Reserve’s preferred measure of inflation.
Inflationary signals have run persistently below the Fed’s 2% target, with March’s core PCE data tracking at just 1.6% year-over-year. Core PCE was flat on a monthly basis in March.
Consensus economists expect that core PCE increased 0.2% month-over-month in April and 1.6% over last year, according to Bloomberg-compiled estimates.
“We look for some pick-up in this measure, but we expect it to remain below 2% this year,” analysts from Wells Fargo Securities wrote in a note last week.
Recent minutes from the Federal Reserve’s last meeting detailed that many central bank officials viewed the downshift in inflation as “transitory,” reflecting temporary declines in prices of apparel and certain financial services. Others, however, were concerned that market participants would begin anchoring inflation expectations below the 2% target, making it difficult to achieve that level over the longer term.
On Wednesday, the BEA reported that core PCE increased just 1.0% quarter-over-quarter during the first three months of 2019, the slowest pace in three years. This was downwardly revised from the 1.3% rate seen initially.
Meanwhile, consensus economists expect that personal income picked up in April versus March. Personal income is anticipated to have risen 0.3% for the month, up from 0.1%.
But personal spending – which accounts two-thirds of U.S. economic activity – is anticipated to have dropped in April, which would further reinforce that consumers are tightening their belts and keeping prices down. Consensus economists are looking for an increase of just 0.2% month-over-month in April’s personal spending, down from a rise of 0.9% in March.
Low inflationary signals – coupled with recent market turbulence amid escalating trade tensions – have led market participants to speculate that the Fed will cut key interests rates to encourage borrowing and spending. As of Thursday afternoon, CME Group’s FedWatch tool showed markets were pricing in an 84.5% probability of at least one rate cut by the Fed’s December meeting.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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