Commerzbank’s Senior Economist Dr. Christoph Balz notes that US CPI data for February show moderate inflation, but stresses that the Federal Reserve is more focused on the PCE deflator and the impact of higher energy prices following the war with Iran. He expects the Fed to keep rates unchanged at the next two meetings, with cuts likely from mid‑year under incoming Chair Kevin Warsh.

Fed weighs energy shock and PCE

"From the Fed's perspective, the figures for February are already somewhat outdated due to the war in Iran."

"The Fed is likely to be more concerned with how long the turmoil on the energy markets will continue and how great the risk is that more expensive energy will feed into higher prices for other goods and services."

"As long as inflation expectations remain low and the labor market remains under pressure, it will probably ignore the rise in oil prices."

"It would also be important for the Fed that the stabilization of consumer prices is reflected more strongly in the personal consumption expenditure (PCE) deflator, which did not show a clear downward trend last year."

"We continue to assume that the Fed will wait and see at its next two meetings, which are scheduled for the middle of this month and the end of April."

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