Latest PCE data supports a March 2024 rate cut, with 2% PCE inflation possible in 1Q24
As opposed to inflation lingering at elevated levels, it is increasingly dissipating, with signs growing that the US economy could venture into outright deflation.
Executive summary
The latest PCE inflation data revealed deepening disinflation, with headline PCE growth MoM negative for the first time since April 2020. Furthermore, MoM core PCE growth was just 0.06%, which is also the lowest rate of growth that has been seen since April 2020.
All key aggregate PCE measures (headline, core, supercore) are now recording growth of 2% or less on a 6-month annualised basis — the last time this occurred was September 2020.
Another month of material declines in gasoline prices in December, and a continuation of current 6-month average growth trends, suggests that the headline PCE Price Index could fall below the Fed’s 2% YoY target in February 2024.
A continuation of the current 6-month average MoM growth rate would see the core PCE Price Index fall to 2.0% in April 2024, and supercore PCE inflation fall below 2% in January 2024.
Given that current growth rates suggest that the Fed’s 2% inflation target will be hit in 1Q24, the latest PCE data supports curre…