The US data docket’s fairly busy this week, but it won’t feel like it. There’s only one top-tier release: PCE prices on Friday.
If economists have it right — and here they may — underlying price growth on the Fed’s preferred inflation measure ran 0.2% (rounded) last month.
A consensus print would count as the first deceleration in the month-to-month pace of core PCE since March. That’d be welcome news at the Fed. And also at The White House, where the administration’s still determined to free up another Fed Board seat by convincing John Roberts to suspend Lisa Cook until her lawsuit works its way through the courts. Late last week, Roberts gave Cook until September 25 to respond to Donald Trump.
If Stephen Miran’s 2025 dot in the SEP was any indication, anyone who sits in for Cook should the Supreme Court stay a lower court injunction which allowed her to participate in the September FOMC meeting will favor a rapid return of policy to neutral via large near-term rate cuts. Inflation or no inflation.
As the figure below reminds you, the monthly core PCE prints need to be far cooler if inflation’s supposed to return to the pre-pandemic “norm.” I don’t think we’re going to get there. As Bloomberg’s Michael McKee pointed out while questioning Jerome Powell at last week’s press conference, the Fed’s timeline on a return to 2% annual price growth keeps getting pushed out, which could lead some to question if the target’s still credible.
The YoY print for core PCE is expected to stick at 2.9%, the same as July, the warmest since February and nearly a full percentage point above “healthy” levels of annual price growth.
All of that said, the good news is that the tariffs haven’t had that much of an impact on inflation aggregates. Not yet, anyway. “August’s print for the Fed’s preferred measure of inflation is poised to reinforce the limited inflationary fallout from the trade war (thus far),” BMO’s Ian Lyngen and Vail Hartman said. “The prevailing read on the inflation complex is that despite some pockets of tariff pass-through, the broad-based re-acceleration in core inflation that many feared during the early stages of the trade war hasn’t yet materialized.”
The inflation update will, of course, be accompanied by a fresh read on spending — and also real spending — for August. Despite the marked deceleration in hiring, Americans are still more than willing to indulge their consumption habit. Or at least the Americans fortunate enough to own financial assets, especially stocks, which are poised to deliver another big windfall to households for Q3. The Q2/Q3 cumulative gain in the value of household corporate equity holdings is roughly $7 trillion.
As BMO’s Lyngen remarked, in the same noted cited above, the three-month average annualized pace of control-group retail sales (that’s the aggregate from the monthly nominal spending report economists use to refine their GDP estimates) is now the highest in a year at nearly 7%. Macro watchers are focused on whether real spending keeps up with nominal outlays.
In addition to the PCE release, traders will get preliminary PMIs this week (Tuesday) with both manufacturing and services seen in expansion territory for the US on S&P Global’s metrics, as well as new and existing home sales (both expected to show a decline for August). The final read on University of Michigan sentiment for September is due out Friday. There are plenty of Fed speakers this week including Powell, who’ll address a luncheon in Rhode Island.
The S&P comes into the week looking to build on a 3% advance for September so far. If the benchmark manages to close out the month with a gain, it’d represent a triumph over what, traditionally, is a bearish seasonal.
