Flash Macro: U.S. Inflation

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A faster start to the year leads us to upgrade our 2024 CPI forecast to +3.1% from +2.9% previously, and to moderate our forecast for Fed cuts in 2024 to two from three. Importantly, while the February CPI report was somewhat above the market’s and our expectations, the details of the report do give us more conviction that services inflation is finally moderating, which further bolsters our confidence that the Fed will be in a position to cut rates in 2H24.

· Higher Goods prices and ‘launch effects’ from higher January/February CPI add 30 basis points to our full-year 2024 CPI forecast, with a 10-basis point offset from lower Services inflation. On net, that puts our full year forecast at 3.1%, versus 2.9% previously.

· Nonetheless, we think the Fed will likely feel better about inflation this year than headline CPI numbers may suggest, as slower PCE inflation and cooler Services pricing give Chair Powell confidence that we are seeing ‘broadening’ disinflation in stickier categories. Against that backdrop, we think two Fed cuts will be appropriate to keep real policy rates near the Fed’s two-percent benchmark through year end.