After hotter-than-expected CPI and PPI (and various survey-based inflation expectations), today brings the Big Kahuna - The Fed's preferred inflation indicator, Core PCE - which is expected to show a dovish downturn (from +2.8% YoY to +2.6% YoY). And that is exactly what happened with headline PCE rising 0.3% MoM (as expected) and Core up 0.3% MoM (as expected). That pushed the YoY shifts lower on a sequential basis (Core PCE YoY at its lowest since June 2024)...
Source: Bloomberg
That is the biggest MoM jump in headline PCE since April 2024...
Source: Bloomberg
Core services prices - a closely watched category that excludes housing and energy - rose 0.2% from a month earlier.
Goods prices excluding food and energy were up 0.4%, the most since early 2023.
The so-called SuperCore PCE (Services ex-shelter) rose 0.2% MoM, dragging the YoY print down to 3.09% - its lowest since Feb 2021...
Source: Bloomberg
On the other side of today's data binge, Personal Spending tumbled 0.2% MoM in January (+0.2% MoM exp) even as incomes soared 0.9% MoM (+0.4% exp). That is the biggest drop in spending since Feb 2021
Source: Bloomberg
Sending the savings rate soaring (after all those revisions)...
Where did the sudden jump in incomes come from? Why, the dear old government of course - transfer payments spiked over $80BN...
Source: Bloomberg
BUT - and it's a big but!!
Why the sudden plunge in spending?
Simple - goodbye USAID - and the billions of outflows to foreign nations...
Source: Bloomberg
The first step to fixing the US economy is here: US govt transfer payments "to the rest of the world" collapse (i.e. goodbye USAID), and the overall US savings rate soars
— zerohedge (@zerohedge) February 28, 2025
More of this. Much more of this pic.twitter.com/LHSTKDeXoC
Inflation-adjusted consumer spending fell 0.5%, marking the biggest monthly decline in almost four years...
Source: Bloomberg
Finally, we note that PCE was the only one of the 'hard' inflation indices to drop in January...
Source: Bloomberg
How long can The Fed rely on this gauge with liquidity rebounding?
