TradingKey - The PCE is projected to fall below consensus market expectations, likely prompting the Federal Reserve to resume its rate-cutting cycle with larger-than-anticipated reductions, which would be bullish for U.S. equities.
On 30 April 2025, the U.S. will release its March Personal Consumption Expenditure (PCE) data. Market consensus forecasts year-over-year headline PCE growth at 2.2% and core PCE at 2.6%, down from February’s 2.5% and 2.8%, respectively (Figure 1). However, we project March PCE will fall below these expectations for three primary reasons:
Figure 1: Consensus Forecast
Source: Refinitiv, Tradingkey.com
Figure 2: PCE (y-o-y, %)
Source: Refinitiv, Tradingkey.com
Figure 3: CPI (y-o-y, %)
Source: Refinitiv, Tradingkey.com
Figure 4: PPI (y-o-y, %)
Source: Refinitiv, Tradingkey.com
Looking forward, tariffs are poised to become a dominant factor influencing PCE. Tariffs exert two opposing forces on inflation. Higher tariffs raise imported goods’ prices, potentially increasing inflation. Conversely, tariffs can slow economic growth, curbing inflation by reducing demand. We believe the latter effect will prevail, leading PCE to trend toward the 2% target in the short to medium term.
Declining inflation, coupled with a subdued economic outlook, is likely to prompt the Federal Reserve to resume its rate-cutting cycle, with reductions potentially exceeding current market expectations. This would be bullish for U.S. stocks (Figure 5) while bearish for the U.S. dollar index and Treasury yields.
Figure 5: S&P 500 Index
Source: Refinitiv, Tradingkey.com