‘Cuts Are Coming’: 7 Economists On December Inflation Data, What It Means For The Fed, Markets

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index, remained at its lowest level in nearly three years last month.

The headline PCE inflation remained anchored at 2.6% on an annual basis in December, the Bureau of Economic Analysis said Friday, aligning with market forecasts. Notably, core inflation, which excludes volatile components like energy and food, edged down to 2.9%, modestly falling below expectations and underscoring the ongoing disinflationary forces at play.

In the wake of the inflation report, notable economists are weighing in, offering insights into the data’s implications for monetary policy and the overall market outlook.

Big Picture Trends: Alfonso Peccatiello, founder of The Macro Compass, advised looking beyond short-term fluctuations. He highlighted the six-month and three-month annualized trends at 1.9% and 1.5%, respectively, and said: “Cuts are coming.” This comment suggests an anticipation of a shift in monetary policy.

Favorable Economic Sweet Spot? Mohamed El-Erian, chief economic advisor at Allianz, said the December data is “in line with what have been pretty consistent upside surprises for U.S. economic activity.” El-Erian highlighted the division in economic perspectives: some believe the U.S. is nearing the end of a favorable period, while others see a strong foundation for continued economic strength.

Positive Outlook for Fed, Markets: Larry Tentarelli from Blue Chip Daily views the data as a positive sign. “With Core PCE at 2.9% Y/Y versus a Fed funds rate of 525-550, today’s inflation report gives the Fed a path to cut interest rates,” he said. Tentarelli anticipates potential rate cuts, depending on upcoming economic and jobs data.

Balanced Fed Response Expected: Jeffrey Roach, chief economist of LPL Financial, sees the data as affirming for the Fed. “The improving inflation trajectory is improving, giving the Fed leeway to cut rates this year,” he said. Roach did sound a cautionary note about potential short-term fluctuations in goods inflation.

Inflation Normalization And Fed’s Caution: Quincy Krosby, global chief strategist at LPL Financial, commented on the core inflation trends nearing the Fed’s target, suggesting the Fed will likely continue its watchful approach….