Lower inflation puts pressure on the Fed
The Fed is missing its target once again.
Today's PCE data highlights that Fed officials overestimated how much inflation would feed into the economy from better growth and low unemployment. Core PCE is at just 1.6%.
UBS expects it to fall to 1.5-1.6% until August, then edge higher to 1.6-1.7% at year end.
"This level of weak inflation would bother any Committee but will weigh particularly heavy on this Committee at this time, given their recent focus on systematic misses of their target," economists at UBS write ahead of the FOMC.
Still, they don't expect a capitulation and there is no fresh dot plot this month so the hiking bias will remain.
"We believe that fears of higher inflation, driven by the low unemployment rate, will forestall any public discussion of rate cuts," they write.
