Deutsche Bank economists flag Thursday’s US personal income and spending report, including core PCE, as the key data for the Federal Reserve. They expect core PCE to rise 0.3% month-on-month, with consumption momentum cooling. The note highlights Governor Waller’s hawkish comments and argues that prior “insurance” cuts have left the fed funds rate below standard policy rule settings.

Core PCE and Waller comments shape outlook

"In the US, the clear focal point is Thursday’s April personal income and spending report (Thursday), which contains the Fed’s preferred inflation gauge."

"Our economists expect core PCE inflation at around +0.3% month-on-month, unchanged from March, with the year-on-year rate edging higher."

"On the real economy side of the same report (Thursday), our economists expect momentum to cool after a very strong March, with personal consumption growth slowing back to around +0.3% month-on-month and personal income rising by roughly +0.4%."

"This comes after a hawkish speech from Waller on Friday."

"Staying with the Fed, last Friday, our Chief US economist, Matt Luzzetti, wrote an interesting piece entitled “overinsured” where he discusses how the Fed has delivered 175bps of rate cuts in this cycle even as inflation has remained well above target, framing the last round as “insurance” or “risk management” cuts in response to elevated downside labour market risks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)