US DATA: Soft Import Inflation But Some Slightly More Positive Core PCE Tracking
Import prices were notably softer than expected in March along with downward revisions to February, although firm details for a specific airfare series could have boosted core PCE estimates a touch. Import inflation should see a boost ahead from recent dollar weakness but the fit is clearly not great.
- Overall import prices fell -0.1% M/M (cons 0.0%) in March after a downward revised 0.2% (initial 0.4%) in February.
- For a better idea of underlying price pressures, imports ex petroleum prices saw a larger miss with 0.0% M/M (cons 0.3) after 0.1% (initial 0.4%).
- It saw ex-petroleum import price inflation ease two tenths to 1.6% Y/Y for its lowest since August via recent highs of 2.3% Y/Y in Oct and Dec.
Within the details, air passenger fares increased 0.6% M/M in NSA terms, between 2024 and 2023 values but higher than most readings in prior years. Morgan Stanley see this as 1% M/M in seasonally adjusted terms vs -4.5% M/M expected and have nudged their core PCE estimate from 0.08% M/M (in line with other analysts) a touch to 0.10% M/M.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
