The US Bureau of Economic Analysis is set to release the Personal Consumption Expenditures (PCE) Price Index data for April, a key inflation metric closely monitored by the Federal Reserve (Fed) and market participants. The core PCE Price Index, which excludes volatile food and energy prices, is anticipated to increase by 0.3% month-over-month in April, mirroring March's rise. On a year-over-year basis, core PCE inflation is expected to edge up to 3.3%, while the headline annual PCE inflation is forecast to reach 3.8%, its highest level since May 2023 [1].
Market participants are expected to scrutinize the PCE data, as it could influence the Fed's policy outlook. The ongoing Middle East conflict adds to the uncertainty, prompting investors to assess whether the central bank might consider an interest rate hike before year-end. According to the CME FedWatch Tool, markets are currently pricing in about a 50% probability that the Fed will raise the policy rate by at least 25 basis points by the end of 2026 [1].
Recent comments from Fed officials highlight a shift in tone. Minneapolis Fed President Neel Kashkari, who dissented at the April policy meeting, noted that recent data indicate higher inflationary risks. Fed Governor Christopher Waller, previously known for a dovish stance, also suggested removing the easing bias from the policy statement and stated he would support a rate increase if inflation expectations become unanchored [1].
TD Securities forecasts that core and headline PCE prices moderated in April to 0.26% and 0.43% month-over-month, respectively, translating to 3.3% and 3.8% year-over-year. The firm also expects nominal and real personal spending to slow during the month [1].
CONCLUSION
The anticipated uptick in US core PCE inflation for April is reinforcing expectations of a more hawkish Fed stance. With key officials signaling openness to rate hikes and markets pricing in a significant probability of policy tightening, investors are likely to remain cautious as they await the official data release.