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US OUTLOOK/OPINION: Consensus Core PCE Should Keep FOMC Forecast Attainable

US OUTLOOK/OPINION
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  • Conditional on any surprise Q2 revisions in Thursday’s Q2 release, a core PCE print of 0.15% M/M in July would allow the FOMC to see 0.21% M/M increases to year-end to remain consistent with the median forecast of 2.8% Y/Y for Q4 from the June SEP.
  • We chart an illustrative forecast with 0.2% M/M increases from August onwards, which yields 2.78% in Q4 but would have been met with a six-month average of just 2.3% annualized over 2H24 (highlighting the aforementioned base effects at play). 
  • Alternatively, a continuation of recent 0.15% prints would yield 2.6% Y/Y for Q4 and see a six-month average of 1.8%. The median FOMC participant forecast end-2025 core PCE inflation at 2.3%. 
  • Those base effects have seen Chair Powell previously deem an end-2024 core PCE figure of 2.6% or 2.7% Y/Y as a “really good place to be”. 
  • The inflation trajectory therefore looks promising, hence the rapidly increased focus on the labor market where latest data for July put the unemployment rate already fractionally above the FOMC’s long run estimate of 4.2%. 
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  • Conditional on any surprise Q2 revisions in Thursday’s Q2 release, a core PCE print of 0.15% M/M in July would allow the FOMC to see 0.21% M/M increases to year-end to remain consistent with the median forecast of 2.8% Y/Y for Q4 from the June SEP.
  • We chart an illustrative forecast with 0.2% M/M increases from August onwards, which yields 2.78% in Q4 but would have been met with a six-month average of just 2.3% annualized over 2H24 (highlighting the aforementioned base effects at play). 
  • Alternatively, a continuation of recent 0.15% prints would yield 2.6% Y/Y for Q4 and see a six-month average of 1.8%. The median FOMC participant forecast end-2025 core PCE inflation at 2.3%. 
  • Those base effects have seen Chair Powell previously deem an end-2024 core PCE figure of 2.6% or 2.7% Y/Y as a “really good place to be”. 
  • The inflation trajectory therefore looks promising, hence the rapidly increased focus on the labor market where latest data for July put the unemployment rate already fractionally above the FOMC’s long run estimate of 4.2%.