US PCE Index tipped to show price stickiness as markets search for further disinflation
US PCE Index Preview: Sticky Inflation Signals Ahead of Tariff Impact.
The US PCE Index data is forecast to show a slight up lift in price pressures in February. According to Bloomberg surveys, the headline PCE Index is likely to have remained steady at 2.5% last month. However, the critical core reading, which the US Federal Reserve looks at to gauge underlying inflationary pressures in the US economy, is tipped to edge higher to 2.7%. twWhile there remains the consensus view that inflationary pressures will continue to moderate in the US economy and there will be further progress towards the US Federal Reserve’s 2% inflation target over time, the Core PCE Index still flashes amber warning signals that prices are sticky and possibly anchored in the mid-to-high 2% range.
(Source: Trading Economics)
Policy makers at the Fed continue to project confidence that inflation will trend lower, slowly, over time. However, the central bank expects bumps along the path, with the Trump administration’s tariffs expected to cause a spike in the price level this year. The Summary of Economic Projections, released with last week’s FOMC decision, revealed the Fed sees core PCE Index averaging 2.8% in 2025, before returning to its previous path to 2% by 2027.
(Source: US Federal Reserve)
The upward revision in inflation forecasts and the tacit assurance the Fed will still cut interest rates this year despite the spike increases the tolerance markets will have for upside surprises in future inflation data. The key dynamic for now will be inflation, on average, remaining at or below the 2.8% level. Any greater upside shock may raise fears that the Fed will have diminished capacity to cut rates further, even despite tariffs weakening growth.
As a result of this, this week’s PCE Index data will help form a baseline for inflationary pressures before tariffs start to take effect and increase price levels. A moderate number, ideally paired with a narrower, shallower and more targeted list of tariffs announced by the Trump administration, will help boost market sentiment.
From a technical standpoint, the S&P 500 is flashing early signals of a rebound as the markets anticipate less aggressive trade restrictions from the United States. The index has broken out of its short-term downtrend, the daily RSI has reversed its downward momentum, with the index jumping back above the 200-DMA. 5775 looms as the most immediate resistance level, while key support is at the index’s recent lower-low at 5500.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)