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Fears of a stock market crash are swirling ahead of the April personal consumption expenditures (PCE) inflation report, due for release on Friday, May 31. In fact, the Consumer Price Index (Consumer Price IndexThe 2019 report has raised investor hopes for upcoming rate cuts, and now a confirmation from the Fed’s favorite inflation measure could be just the ticket.
What should we expect this time around?
Now, investors have high hopes for PCE, following a surprisingly encouraging CPI. If you recall, the CPI rose 0.3% in April, beating expectations of a 0.4% increase and slowing slightly from March’s 0.4% increase. April CPI rose 3.4% year-over-year, also down from March’s 3.5%.
it is Amazing The higher than expected inflation rate brought rate cut hopes back to Wall Street, which was depressed at the time. Indeed, high inflation rates for several months this year led many to speculate that with inflation still above desired levels, the central bank may not cut policy rates at all in 2024. The April CPI changed all that, putting even more strain on PCE to deliver results comparable to the previous reading.
The Cleveland Fed’s Inflation Estimate Index projects that April’s PCE will rise 0.27% to an annualized rate of 2.68%, down from March’s 0.3% PCE increase and associated 2.7% year-over-year CPI. If the forecast is accurate, Wall Street is expected to react positively.
Will PCE cause a stock market crash?
Wall Street breathed a huge sigh of relief following the CPI release, with many analysts expecting the Fed to start cutting interest rates in September as the fight against inflation appears to be well on its way to a conclusion.
In fact, interest rate sensitive Nasdaq Composite Index Stocks rose nearly 2.5% in just a few weeks after the CPI was released as investors dreamed of a more deregulated financial environment.
That said, PCE will be the ultimate test: if the Fed’s preferred inflation measure confirms the CPI’s disinflationary trajectory, the case for future rate cuts will be strengthened. Conversely, if PCE shows a different outcome than the CPI, hopes for a rate cut this year could be dashed.
“So [if] To get a positive number [the PCE] […] “This is a really good sign for the economy. Things could get worse if inflation surprises on the upside,” he said. Investor’s Business Daily “I think the market is starting to sense that things are looking up again on this front. This could be a game-changer. That’s not what the market wants,” said News Editor Ed Carson.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com’s Publishing Guidelines..
