Barclays economists now expect the Personal Consumption Expenditures (PCE) inflation of 1.9%, on a seasonally adjusted annual rate, in the second half of 2023. Looking ahead, they foresee it reaching 2.4% year-on-year by the end of 2024.
The latest Producer Price Index (PPI) data, released today, indicates a softening trend. Based on this information, it is suggested that the December 2023 core PCE inflation, scheduled for release on January 26, stood at 0.17% month-on-month (2.9% year-on-year).
This calculation implies that the core PCE maintained an average of 1.9% seasonally adjusted annual rate during the last six months of 2023. It's noteworthy that core PCE inflation data, which is known as the Fed’s preferred inflation measure, has been closely aligning with the FOMC's targeted objective.
In response to these developments, Barclays now envisions the FOMC to implement a policy of cutting rates by 25 basis points at every other meeting, commencing in March.
This forecast is anticipated to result in a fed funds target range of 4.25-4.50% by the conclusion of 2024 and a further reduction to 3.25-3.50% by the close of 2025.
“We view our rate cut projection largely as a recalibration of the nominal policy rate in light of the
lower inflation, and it is predicated on a continued moderation in inflation measures,” analysts at Barclays said.
“Our rate cut projection also does not reflect political considerations surrounding the upcoming elections. Instead, we think the FOMC will base its rate decisions on economic considerations, and primarily on the inflation outlook.”
Barclays was previously expecting the Fed to start cutting rates in June.