US inflation data in focus, but it’s not going to change the Fed’s thinking

US February CPI figures are due at 1230 GMT later today
You can get all the preview of those figures here, as compiled by Eamonn. Here are the expectations for the release later:

  • CPI m/m +0.2%
  • CPI y/y +2.2%
  • Core CPI (ex food and energy) y/y +1.8%

The prior report can be found here. The key again will be the ex food and energy reading, otherwise known as the core reading, and that will move the market on the headlines.
But it’s important not to get too carried away. The Fed’s preferred measure of inflation is the PCE deflator and the core reading there doesn’t suggest that inflationary pressures are too optimistic.

The 1.5% reading is still some way off the Fed’s 2% target, and unless Powell and co are that confident on inflation returning over the next few months, we are likely to see something similar to the message they sent out in December’s meeting.
Fed speakers have constantly reiterated that three rate hikes remain their base case scenario for this year, and if anything, four appears to be the maximum they will go based on current economic conditions.
I would be surprised if the Fed does forecast four rate hikes via their dot plots projection later this month — as it removes a degree of flexibility in their communication and they are at risk of over-promising the amount of rate hikes to the market. But as Adam pointed out here yesterday, if central bankers start taking a leap of faith instead, then it’s something that could very well happen.
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