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Inflation reports, which showed better-than-expected slowdowns in consumer and wholesale prices last month, may be hiding an unpleasant surprise, Bank of America (BAC-0.71%) economists said: Progress on the Fed’s favorite indicator has probably stalled.
Parsing the reports released yesterday and today shows that the monthly increase in core Personal Consumption Expenditures (PCE) may have picked slightly up to 0.4% in February, with the year-over-year changes also picking up slightly, the bank’s U.S. economists Jeseo Park and Stephen Juneau wrote in a note to clients.
“Our forecast for PCE inflation reinforces our view that inflation is unlikely to fall enough for the Fed to cut this year, especially given policy changes that boost inflation,” the economists said. “We maintain our view that policy rates will stay on hold through year-end unless activity data really weakens.”
The Federal Reserve will meet next Wednesday to decide on interest rates. While it’s not expected to cut this time, some other observers have said that investors’ concerns over a possibly softening economy — reflected in falling stock prices — mean that policymakers could cut as soon as May and up to twice more later in the year.
Comerica (CMA-0.94%) said in a note to clients that details from the producer price index (PPI) wholesale report suggest that the PCE report will be benign for markets — in contrast to BofA — but added that the outlook for inflation now depends more on tariffs, deportations and the Department of Government Efficiency.
Today’s benign PPI report wasn’t enough to support stocks after President Donald Trump said he’ll impose 200% tariffs on alcohol imported from the EU, escalating the trade war. The Nasdaq Composite fell 1.5% as of about 12:05 p.m., the S&P 500 fell 1.1% and the Dow Jones Industrial Average lost 446 points, or about 1.1%.