What to expect in the Federal Reserve’s preferred PCE inflation report?

The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in February, at a slightly softer pace than the 0.4% increase recorded in January. February core PCE is also projected to grow at an annual pace of 2.8%, matching the previous reading. The headline PCE inflation is forecast to tick up to 2.5% (YoY).

The Federal Reserve’s revised Summary of Economic Projections (SEP), also known as the dot plot– published alongside the policy statement after the March meeting – showed that policymakers expect the annual core PCE inflation to be at 2.6% at the end of 2024, up from the 2.4% forecast seen in the December SEP. 

When commenting on the policy outlook in the post-meeting press conference, Fed Chairman Jerome Powell reiterated that they need greater confidence of inflation moving sustainably down toward the 2% target before they start lowering the policy rate. Powell, however, argued that strong inflation numbers in January were impacted by seasonal effects. 

Previewing the PCE inflation report, “Given still robust increases in the Feb CPI/PPI data, we look for another firm gain for the core PCE — though notably down from January's 0.42% increase and from the core CPI's 0.36% m/m February gain,” said Oscar Munoz, Chief US Macro Strategist at TD Securities, in a weekly report.