5 Economists React to Core PCE Numbers: What Will The Fed Do Next?

Core PCE inflation, the Federal Reserve's preferred gauge of inflation, rose by 4.6% year-on-year in February 2023, the lowest rate in 15 months and below market expectations of a 4.7% rise. 

Core PCE prices rose by 0.3% month-over-month, following a 0.5% surge in January and falling short of market expectations of 0.4%.

Here are the reactions of economists and experts to the data and their opinions on the Federal Reserve actions ahead.

Read Next: From Presidential Portrait To Mug Shot: What's Next For Donald Trump After New York Indictment?

'No More Hikes Please': Robin Brooks, chief economist at the Institute of International Finance (IIF), warned on his Twitter that a credit crunch of unknown severity is brewing and recession risk is rising dramatically, urging the Federal Reserve not to raise interest rates anymore.

Michael Gapen, chief U.S. economist at Bank of America, said in a note Friday the data supports the house view that the Fed will hike by 25bp in May before going on hold. BofA noted that the drop in core services ex housing, up by 0.2% m/m following a 0.5% m/m increase in the prior month, is an "encouraging print of the day" for the Fed. 

Jeffrey Roach, chief economist for LPL Financial: "Prices in February rose 0.3% from the previous month, pulling the annual rate of inflation down the lowest since September 2021 and eventually providing some leeway for the Fed. The inflation trend looks promising for investors. Inflation will likely be below 4% by the end of the year, giving the Federal Reserve some leeway to cut rates by the end of the year if the economy falls into recession," he said in a note. 

Eric Rosengren, former president and CEO of Boston Federal Reserve: "While the PCE inflation in today's release was viewed positively by the markets, I am not sure how comforting it should be. Core pce is coming down quite slowly and not currently on a trajectory to the low 3's by the end of this year," he wrote on Twitter. 

Nick Timaroes, chief economics correspondent at The Wall Street Journal, noted core PCE services excluding housing had the smallest increase in February since last July, up 4.6% on the year. 

Market Is Almost Equally Split Between Hold, Hike: As of Friday, Fed futures are assigning a probability of 54% for a 25 basis point hike at the next Fed meeting in May, marginally higher that the chance assigned to rates on hold (46%), according to the latest CME Group FedWatch Tool. 

The iShares 20+ Year Treasury Bond ETF TLT rose by 0.7% on Friday, as long-term yields slightly fell.