Eyes on US core PCE after GDP surprises to the upside [Video]

The US printed a better-than-expected growth of 3.4% and Federal Reserve’s (Fed) Waller said that the recent economic data deserves delaying rate cuts and reducing the number of them, and that he wants to see ‘at least a couple of months of better inflation data’ before easing. But this is not what the majority of Fed members think. They think on the contrary that three rate cuts would be suitable for this year.

As such, yesterday’s better-than-expected GDP pill went down the market’s throat quite smoothly, as Waller’s hawkish remarks were mostly washed away by the soft-landing bets and bets that the Fed will – in all cases – cut rates into summer if it doesn’t want to take the centerstage in the US political turmoil into the November election. In this context, if inflation doesn’t get meaningfully ugly, the rate cut should arrive by June or July.

Today, most exchanges around the developed world will be closed due to Good Friday holiday, but the US will print its latest core PCE figure – which is the Fed’s favourite inflation metric. A hotter-than-expected inflation report could further back the USD bulls, and – maybe - temper the dovish Fed expectations provided that a good growth number is good news as long as inflation remains low. If inflation shows signs of picking up, it suddenly becomes bad news.