Economist Veronica Clark on Sticky Inflation, Tariffs, and Market Movers

PCE Inflation Outlook

• 🎯 Veronica Clark, a Citi economist, anticipates core PCE to rise by 2.7% year-over-year, a figure aligning with consensus estimates.
• ⚠️ The Federal Reserve, however, projects a slightly higher reading of 2.8% for the February core inflation.
• 💡 This expected inflation reading is not anticipated to be a major surprise, as most of the data is already reflected in CPI and PPI reports.

Impact of Tariffs on Prices

• 📈 Tariffs are expected to begin impacting prices more noticeably in the spring and summer months.
• 🧩 Currently, the February data is not showing a significant effect from these tariffs.
• 🗣️ CEOs find it challenging to accurately assess and predict the full impact of tariffs on their businesses.

Market Movers and Economic Data

• ❓ A key question is whether a hotter-than-expected PCE report would significantly move the market, given that rising prices due to tariffs are somewhat anticipated.
• 📊 If inflation proves stickier than expected, especially with the anticipated tariff impact, it could be a market mover.
• 📉 However, the focus may shift to softer economic and labor market data in the coming months, which could become a more significant driver for market sentiment.
• ⚠️ A hotter PCE reading, combined with the expected tariff inflation, could create a shock if it exceeds current market expectations.