jackpotguru| Will the Fed's favorite inflation indicator save U.S. stocks next week?

Source: yuan Wei on Wall Street

The market generally expectsJackpotguruThe US PCE price index may remain high in March, but PCE data showJackpotguruInflation is likely to be more moderate than that of CPI.

After US stocks tumbled after better-than-expected CPI data in March, the focus began to shift to the personal consumption Expenditure (PCE) price index released next Friday.

It is widely expected that the PCE price index, the Fed's favorite indicator of inflation, is likely to remain high in March, further announcing expectations that a rate cut will require patience. As energy costs rise, the US PCE index is expected to accelerate slightly to 2% in March from a year earlier.Jackpotguru.6%. Excluding energy and food, the core PCE is expected to remain at 0.Jackpotguru.3%, consistent with the previous value, indicating that inflation is no longer cooling.

However, PCE data may show that inflation is more moderate than CPI, because in CPI statistics, housing is actually driven by "owner's equivalent rent" (OER). This is the Bureau of Labor Statistics's estimate of the rent that owners of self-occupied homes will have to pay if they rent their house.

The OER is based on rents similar to rental housing, which are not included in the EU HICP and UK CPI indicators used by the ECB and the Bank of England.

But it accounts for as much as 34 per cent of the core CPI (excluding food and energy). OER accounts for a much lower proportion of the Fed's preferred measure of PCE inflation: the core PCE only gives it a 13% weight, and less emphasis on OER gives PCE a more accurate picture of inflation.

Analysts point out that Fed officials are about to receive further confirmation that progress in fighting inflation has stalled, supporting a shift in the tone of the policy outlook to keep interest rates for longer than previously expected.

On Friday, a number of senior Fed officials spoke that they generally believed that the US economy was still resilient, that there was no urgency to cut interest rates in the short term, and that they needed evidence to be fully confident that inflation could fall to 2% before they could consider cutting interest rates. Federal Reserve Chairman Colin Powell also said on Tuesday that it might be appropriate to let the high interest rate policy work for a longer time. What's more, Williams, chairman of the New York Fed, known as the "top three of the Fed", warned on Thursday that the Fed would raise interest rates if the data showed that the Fed needed to raise interest rates to meet its targets.

Analysts believe that, given the limitations of real interest rates, economic weakness and the position of potential inflation, the Fed may still need to cut interest rates. But given recent comments from Fed officials, the Fed is more likely to cut interest rates later this year and by less.

It is worth mentioning that personal expenditure and income data for March are also released along with PCE data. Against the backdrop of a robust job market, economists expect household spending on goods and services to rise sharply again, and income growth is expected to accelerate.