The FOMC meeting minutes that released last week has cemented expectations for a rate hike 14th June. While second estimate for 1Q GDP growth came in higher at 1.2%, the number remains subdued. Incoming soft data (especially disappointing inflation data) has lower our expectations for quicker economic momentum.
This week’s inflations and labour data, and most importantly wage growth, will be key in pricing the Fed next moves. However, the last two consumer price inflation reports highlighted a persistent weakness in core inflationary pressure. This lack of price growth may put the Federal Reserve back on the sidelines, forcing Janet Yellen to slowdown the ongoing tightening cycle. April’s PCE deflator is due for release on Tuesday and is expected to ease further to 1.5%y/y, down from 1.6% a month earlier. A weaker reading could seriously jeopardize the pace of rate normalization beyond the June meeting.
By Peter Rosenstreich