Inflation is in line with expectations, will the Fed cut interest rates as expected?

On Thursday, the U.S. personal consumption expenditures (PCE) price index rose 2.8% year-on-year in January, which was expected to rise 2.8% and the previous value rose 2.9%. It rose 0.4% month-on-month, and was expected to rise 0.4%, while the previous value rose 0.2%. The PCE price index rose 2.4% year-on-year, and was expected to rise 2.4%, and the previous value rose 2.6%; it rose 0.3% month-on-month, and was expected to rise 0.3%, and the previous value rose 0.2%.

Previous market forecast data showed that the overall PCE in the United States in January will increase by 0.3% monthly and 2.4% annually; core PCE is expected to increase by 0.4% monthly and 2.8% annually.

As the Fed’s favorite inflation indicator, year-on-year changes in the core PCE price index have a greater impact on policymakers.

At the same time, the number of people filing for unemployment benefits in the United States for the week ending February 24 was 215,000, compared with the expectation of 210,000 and the previous value of 201,000.

U.S. personal income rose 1.0% month-on-month in January, expected to rise 0.4%, and the previous value rose 0.3%; personal expenditures rose 0.2% month-on-month, expected to rise 0.2%, and the previous value rose 0.7%. Actual personal consumption expenditures fell by 0.1% month-on-month, compared with expectations for a 0.1% fall, and the previous value rose by 0.5%.

After the news was announced, U.S. stock index futures rose slightly, with the Dow futures narrowing the day's decline to 0.13%, and the S&P 500 index futures and Nasdaq futures turning from losses to gains. As of the close, the three major U.S. stock indexes collectively closed higher, with the Dow rising 0.12%, the S&P 500 rising 0.52%, and the Nasdaq rising 0.9% to hit a record closing high. U.S. bond yields fell across the board, with the 5-year U.S. bond yield falling 1.6 basis points to 4.251%, the 10-year U.S. bond yield falling 1.6 basis points to 4.255%, and the 30-year U.S. bond yield falling 2.7 basis points to 4.382. %.

This indicator will be the key for the market to judge whether inflation is returning and the Fed's next steps.

Two weeks ago, the January CPI data released by the U.S. Department of Labor exceeded expectations. The consumer price index (CPI) that month rose by 3.1% year-on-year, failing to enter the "2 era" as expected, and the market was disappointed.

But the Bureau of Statistics, a subsidiary of the U.S. Department of Labor, explained this week that a surge in one rental inflation measure was due to adjustments in the index's sub-item weights.

The latest data shows that the U.S. personal consumption expenditures price index (PCE) rose at an annual rate of 1.8% in the fourth quarter, and the core PCE index rose by 2.1%, which was revised upward compared with the initial value. On the day the data was released, many officials from the Federal Reserve once again emphasized that they still need to wait for more evidence that inflation is close to the 2% target before determining that it is appropriate to start cutting interest rates.

// Prospects for interest rate cuts remain unchanged //

After the release of U.S. PCE and preliminary request data, Satyam Panday, chief U.S. analyst at S&P Global Ratings, said it would be prudent not to make any strong judgments until February data is released, regardless of whether the acceleration in inflation in January was due to The interference of seasonal adjustment factors still makes the Fed more worried about the beginning of inflation.

Industry insiders commented that there were no surprises in U.S. inflation, leaving room for the Federal Reserve to cut interest rates in June. U.S. inflation slowed slightly as expected at a time when the job market appeared to be losing momentum, pushing U.S. bond yields lower as the data looked unlikely to change prospects for a rate cut this summer.

Scott Rubner, a strategist at Goldman Sachs Group, said it is impossible to predict the top of the current U.S. stock market rally. Rubner said that just as the "Goldilocks" scenario in which the economy is neither too hot nor too cold is good for the market, retail traders are attracted by this round of gains, prompting analysts to quickly raise their year-end targets. He said the market was "fuller" in March and the rally had "burned out," but there was no catalyst for a sell-off.

However, for U.S. stocks, interest rate cuts are not necessarily a "good time."

Aide Securities Futures Research Report stated that in the past 40 years (1983-2023), the Federal Reserve has experienced five complete interest rate cutting cycles. After a cycle of interest rate hikes, it turned to interest rate cuts, with four substantial recessions occurring during the rate cut process. In the interest rate cutting cycle, only once (October 1984-January 1987) achieved an economic ‘soft landing’. There are substantial recessions with different degrees of recession caused by different triggers. In these recessions caused by interest rate cuts, the S&P 500 Index experienced a maximum decline of 57.69% and a minimum decline of 20.36%.