Tonight's PCE is coming, which may support the Federal Reserve's decision to hold steady

According to Zhitong Finance APP, the inflation data set to be released this Friday is expected to show that the pace of consumer price increases in the United States will accelerate by the end of 2024, a trend that may support the Federal Reserve's decision to keep interest rates unchanged.

According to the consensus forecast from economists at FactSet, the PCE price index is expected to increase by 0.3% month-on-month in December, up from 0.1% in November and 0.2% in October. This index is expected to rise by 2.6% year-on-year, marking the largest annual increase since May 2024.

The core PCE price index, which excludes food and energy prices, is expected to rise by 0.2% month-on-month in December, an increase compared to 0.1% in November and 0.3% in October. The year-on-year increase in core PCE is expected to remain at 2.8% for the third consecutive month.

The timing of this data release coincides with the Federal Reserve's latest policy decision announced two days earlier. At this meeting, Federal Reserve officials unanimously voted to keep interest rates unchanged, following a cumulative rate cut of one percentage point in three meetings in 2024.

Federal Reserve Chairman Jerome Powell stated at a press conference on Wednesday that the central bank's current policy adjustments are based on progress in slowing inflation and rebalancing the labor market. "Given the progress made on inflation and the rebalancing of the labor market, our policy adjustments are appropriate," Powell said. "Currently, our policy has significantly reduced its restrictiveness, while the economy remains strong, so we do not need to rush to further adjust policy... We are clear that if we relax policy too quickly or excessively, it could hinder the process of inflation decline."

Previously, the Consumer Price Index (CPI) data released by the U.S. Bureau of Labor Statistics on January 15 showed that the CPI rose by 0.4% month-on-month in December and increased by 2.9% year-on-year; the core CPI rose by 0.2% month-on-month and increased by 3.2% year-on-year.

Additionally, the U.S. Bureau of Economic Analysis released data on Thursday showing that the annualized quarterly growth rate of the core PCE price index in the fourth quarter was 2.5%, in line with market expectations. This result indicates that if the data for October and November are not revised, the month-on-month increase in the core PCE price index for December may be 0.2%.

The annualized growth rate of the actual GDP in the fourth quarter was 2.3%, with an annual growth rate of 2.8%. The annual PCE price index increased by 2.5%, and the core PCE increased by 2.8%.

The Federal Reserve's long-term inflation target is 2%, which means that the monthly inflation increase needs to average around 0.17%. According to the latest economic forecast summary released by the Federal Open Market Committee (FOMC) on December 18 last year, the expected increase in the PCE and core PCE price indices for 2025 is 2.5%.

The market expects the Federal Reserve to continue to keep interest rates unchanged at its next meeting on March 18-19, with futures market data indicating an approximately 80% chance of pausing rate hikes. Additionally, market pricing and the FOMC's latest forecasts suggest that the Federal Reserve may cut rates by a total of 0.5 percentage points this year