Key events this week – US PCE inflation, Prelim PMIs March
Recap from last week: Central banks adopt a cautious approach amid an uncertain outlook.
Central bank decisions last week underscored a cautious approach to the near-term policy outlook amid rising uncertainty and a focus on persistent inflation.
The FOMC kept interest rate settings unchanged, as expected while reducing the cap on QT. The FOMC signaled it would stay on hold and was in no rush to adjust policy while growth and labor market conditions remain solid, as it waits for greater clarity on the Trump policy initiatives. The Fed Chair noted the unusually high degree of uncertainty in the near-term outlook ahead of the new policy details. For now, new projections show that inflation is expected to be more persistent with core PCE inflation projected to increase to +2.8% through 2025. However, as Powell noted, the current ‘base case’ is that core inflation is expected to fall back to 2.2% in 2026. Growth was revised lower this year, and closer to trend growth through the projection period. The unemployment rate is expected to be stable through the projection period, though rising from 4.1% currently to 4.4% by the end of this year as growth slows. Rate cut expectations narrowed, with the median remaining at two cuts for this year. The FOMC participants mirrored the elevated uncertainty with most marking up the risk weighting around their projections (source: SEP March 2025).
Powell also noted that rising uncertainty had affected sentiment among businesses and consumers, and it was not clear how this would translate into weakness in “hard data”. So far, the “hard data” has shown little effect from this falling sentiment – and it could be too early to tell. US data last week was mixed; retail sales were soft again in Feb, housing data added positively to residential investment, and manufacturing output growth was stronger than expected in Feb – possibly due to higher orders ahead of expected tariffs. The first regional manufacturing surveys for Mar showed moderating orders, output, and growth expectations, with mostly stable employment conditions. Initial jobless claims remained low/steady.
The BoE kept policy settings unchanged, remaining restrictive to “squeeze out persistent inflationary pressures”. The BoE focused on inflation risks in its deliberations – a shift from its last meeting given the higher-than-expected uptick in inflation in Feb to +3%, from +2.5% in Jan. The Committee projected that CPI inflation was still expected to rise to around 3¾% in Q3 2025. This firmer inflation appears against a backdrop of slowing growth and rising uncertainty over the impact of global trade policy since the last meeting. The minutes of the meeting indicated that while the underlying disinflation process was expected to continue, the BoE had taken a more cautious approach to its guidance;
There was no presumption that monetary policy was on a pre-set path over the next few meetings. Source: BoE Meeting Minutes, 20 Mar 2025
The BoJ kept policy settings unchanged. The assessment of current conditions and the economic outlook signaled that the BoJ is likely to maintain its stance on a gradual approach to policy normalization. Wage negotiations are producing continued stronger results, and inflation has been maintained against a backdrop of accommodative financial conditions. The Japanese National CPI data for Feb eased by less than expected, even as government energy subsidies resumed. The core CPI excluding fresh food and energy has consistently edged higher since mid-2024 and increased by more than expected to +2.6% in Feb. The BoJ Governor did express concern over whether rising uncertainties over US trade and tariff policy would impact or hinder the progress of its goals;
Ueda said last week he was “very much” concerned about the global economy in light of trade tensions. Source: Bloomberg, 19 March 2025
Outlook for the week ahead; US PCE inflation, prelim S&P PMIs for Mar, and CPI for Aus and the UK.
This week’s data will again be closely watched for signs of impact from rising uncertainty, tariffs, trade policy, and/or US spending cuts. The focus this week is on the Fed-preferred US PCE inflation data for Feb as well as the prelim S&P PMIs for Mar. US spending, income, and prelim trade and inventory data will provide a further update on the US Q1 growth run rate. Additional inflation reports for Aus, the UK, and Japan will also be important this week.
After last week’s relative calm, the US tariff announcements expected on 2 Apr, next week, could lead to a resumption of headline risk in the lead-up to that event.
Key factors to watch this week;
US PCE inflation for Feb is expected to firm. The FOMC press conference opening statement highlighted expectations for a firmer reading this month – those expectations are referenced here.
- Headline PCE inflation is expected to be +2.5% over the year in Feb, unchanged from +2.5% in Jan. This would mean that PCE inflation over the month increased by +0.3% in Feb, also unchanged from +0.3% in Jan.
- Core PCE inflation is expected to increase to +2.8% in Feb, up from +2.65% in Jan. This acceleration suggests that the monthly core PCE rate increased by at least +0.35% in Feb, up from +0.3% in Jan. The latest median projection from the FOMC has core PCE at +2.8% by the end of the year.
US data this week will provide a further update on spending, income, and the Advance Economic Indicators report for Feb including international trade in goods and inventories.
- US personal spending for Feb is expected to increase by +0.6%, up from -0.2% in Jan.
- Personal income is expected to increase by +0.4% in Feb, down from +0.9% in Jan.
- The advance goods trade balance (deficit) will be closely watched after rising notably in Jan to – $153.3bn, which had accounted for much of the downshift in the Atlanta Fed growth nowcast for Q1. Growth in inventories is expected to ease to +0.4% from +0.8% in Jan.
- The advance Durable Goods Orders report for Feb is expected to fall -0.7% after increasing by +3.2% in Jan.
- We continue to monitor the initial claims data. So far, claims remain low, and little changed. Claims are expected to edge slightly higher to 225k last week, from 223k in the week prior.
- The final revision of US Q4 GDP is expected to confirm the annualized growth rate of +2.3% at the end of last year.
A range of CPI reports for Aus, the UK, and Japan will be important;
- The Aus monthly CPI series for Feb will be released this week and, while it’s not the RBA preferred report, will still be important ahead of the RBA meeting next week. Headline inflation is expected to remain unchanged at +2.5% over the year.
- UK CPI will be released this week and will be important in the context of the firmer-than-expected growth in Jan. Headline CPI in Feb is expected to ease to +2.9% from +3% in Jan. Core CPI is expected to increase +3.6% in Feb, slightly lower than the +3.7% in Jan.
- The latest Tokyo CPI data for Mar will provide an early guide on Japanese inflation. The Core CPI ex fresh food is expected to be unchanged at +2.2% in Mar.
The prelim S&P PMI’s for Mar will be released early this week and should provide an update on the outlook for orders, output, prices, employment, and any follow-through on weaker sentiment.
This week, the US Treasury will auction and/or settle approx. $452bn in ST Bills and FRNs, with a net paydown of -$23bn. The US Treasury will also auction the 2-Year, 5-Year, and 7-Year Notes this week – and will settle on 31 Mar.
QT this week: Approx $3.2bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
