USD: All Eyes on Friday’s PCE Print
Article published on March 27th, 2025 3:00AM UK Time
Inflation in Focus as Markets Await Key PCE Data
The February US PCE report, due Friday, will provide crucial insights into inflation trends and the potential timing of Fed rate cuts. With the Fed’s preferred inflation gauge showing signs of persistence, market expectations for monetary easing remain fluid, hinging on whether inflation continues to cool or remains sticky.
Consensus Expectations for PCE Data
📊 Headline PCE:
- Expected at 0.31% M/M and 2.5% Y/Y.
📊 Core PCE (Ex-Food & Energy):
- Expected at 0.34% M/M and 2.7% Y/Y.
The recent February CPI report showed a cooler-than-expected 0.2% M/M increase in both headline and core measures, while PPI came in flat, further easing inflation concerns. However, tariff-driven price pressures remain a risk, and the Fed has acknowledged a potential delay in disinflation progress due to these external factors.
Fed’s View: Inflation Risks Persist, Tariffs Add Complexity
The Fed’s latest economic projections suggest a slightly higher inflation trajectory, reinforcing its cautious stance:
🔹 Headline PCE forecast for 2025 raised to 2.7% Y/Y (prev. 2.5%).
🔹 Core PCE forecast lifted to 2.8% Y/Y (prev. 2.5%).
🔹 2026 forecast remains at 2.2% Y/Y for headline and 2.1% for core.
During this week’s FOMC press conference, Fed Chair Jerome Powell emphasized that while inflation expectations remain anchored, there has been a slight upward drift, partially due to US tariff policies. Powell noted that:
- The Fed is watching tariff-driven inflation closely, but it is too soon to determine if the impact is temporary or persistent.
- Goods inflation in early 2025 may be elevated, and the Fed expects several months of data before assessing its full impact.
- The University of Michigan inflation expectations survey remains an outlier, but the Fed is monitoring it carefully.
With inflation risks still present, Powell signaled that the Fed is in no rush to cut rates, reaffirming that policy decisions will remain data-dependent.
Market Implications: What to Watch for in the PCE Print
📉 If PCE Comes in Softer Than Expected
- Stronger rate cut expectations, with a June rate cut more likely.
- USD weakness, as markets price in earlier Fed easing.
📈 If PCE Surprises to the Upside (Headline Above 0.35% M/M, Core Above 0.35%)
- Market repricing of rate cuts, with the first move potentially pushed beyond July.
- USD strengthens, as Fed policy remains more restrictive for longer.
- Equities may come under pressure, as higher-for-longer rates weigh on valuations.
- Treasury yields rise, reflecting hawkish Fed expectations.
👀 All eyes are on the PCE release this Friday—expect significant market reaction based on how inflation trends evolve.