Stock market crash concerns are all over the place ahead of the release of the December Personal Consumption Expenditures (PCE) report, due tomorrow, Friday, Jan. 26. The Federal Reserve’s favorite inflation gauge should offer some insight into the central bank’s schedule of rate cuts coming this year.
So, what do you need to know about the final inflation report of 2023?
Well, the December PCE should inform whether predictions of a March rate cut come to fruition. Indeed, Wall Street’s current point of debate is just how early in the year the quantitative easing process will start, with some maintaining a cut may come as early as February or March. Others believe rates may not begin to fall until the second half of the year.
In this regard, tomorrow’s PCE should be informative. If you recall, the November PCE, released in December, showed core prices, which exclude Food and Energy prices, climbed just 0.1% on a monthly basis, up 3.2% from the year prior. Including Food and Energy, the headline PCE actually fell 0.1% on the month, up only 2.6% from a year ago.
This fueled rumors that rate cuts may be coming sooner than expected, with the war on inflation coming along even better than many economists assumed.
“The Federal Open Market Committee is not yet ready to declare victory on inflation, but the outlook is much better than it was just a few months ago,” noted Gus Faucher, chief economist at PNC Financial Services. “The slowing in core inflation opens the door for fed funds rate cuts in 2024; the timing will depend on core PCE numbers over the next few months.”
Stock Market Crash Fears In Focus Ahead of PCE
Should tomorrow’s PCE continue November’s trend of easing inflation, it would strengthen the case for a hastened pace of rate cuts. On the flip side, if inflation proves more stubborn than anticipated, it may read as evidence that a bit more time with an elevated benchmark rate may be necessary to reign in prices.
Luckily, either way, the central bank has already stated three or more rate cuts are coming in 2024. Absent a major reversal in economic conditions, the only point of debate is when the cuts will come. Which, when you consider the kinds of uncertainty that has riddled the economy in recent years, isn’t so bad.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
