Citi Predicts Federal Reserve to Cut Interest Rates Following Solid PCE Data By Investing.com

Citi analysts said in a report Friday that higher core personal consumption expenditures (PCE) inflation numbers in March have increased the likelihood of a Federal Reserve interest rate cut in July.

Core PCE inflation in March rose 0.32% compared to the previous month and increased 2.8% compared to the same month last year.

Although this annual growth rate was largely expected with the release of first quarter data, March’s monthly growth rate also exceeded Citi’s predictions and accelerated compared to February.

“We will have to wait until July to be more certain that inflation is slowing, as only April inflation numbers will be released before the Federal Open Market Committee (FOMC) meeting in June,” the bank explained.

“However, we still believe that the numbers for May and June can provide that assurance,” they continued. Citi currently expects the first rate cut in July, with a total rate cut of 100 basis points this year.

“A cut could be considered in June if economic activity data, particularly employment statistics, show a decline in the next report,” Citi noted. “March spending data was solid, but the strength of the services sector appears increasingly at risk as it is largely sustained by limited industries such as healthcare.”

Meanwhile, analysts at Evercore ISI said the headline and core price deflators for March met expectations, but forecasts for January and February were revised upward.

“In April, we expect employment to increase by +200,000 and the unemployment rate to decline to 3.7%,” they predicted. “We expect average hourly wages to increase +0.3% month-on-month and 4.1% year-on-year. The soon-to-be-released Employment Cost Index (ECI) will provide a reliable measure of labor cost growth. Our estimate is 1 “That’s an increase of 1.0% for the quarter (or 4.1% for the year).”

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