What is the distribution of forecasts for the US PCE?

Why it’s important?

The ranges of estimates are
important in terms of market reaction because when the actual data deviates from the
expectations, it creates a surprise effect. Another
important input in market’s reaction is the distribution of forecasts.

In fact, although we can have a range of
estimates, most forecasts might be clustered on the upper bound of the
range, so even if the data comes out inside the range of estimates but
on the lower bound of the range, it can still create a surprise effect.

Distribution of forecasts for PCE

PCE Y/Y

• 2.4% (3%)
• 2.3% (86%) – consensus
• 2.2% (11%)

PCE M/M

• 0.4% (3%)
• 0.3% (16%)
• 0.2% (81%) – consensus

Core PCE Y/Y

• 2.8% (88%) – consensus
• 2.7% (12%)

Core PCE M/M

• 0.3% (87%) – consensus
• 0.2% (13%)

Analysis

We
can ignore the headline PCE as the market will focus on the Core
figures. We can see that there’s a pretty strong consensus for 2.8% Y/Y and 0.3% M/M readings. This shouldn’t be surprising given that forecasters can
reliably estimate the PCE once the CPI and PPI are out, so the market already
knows what to expect.

Therefore, unless we see an upside surprise, it shouldn’t affect the current market’s pricing of roughly three rate cuts by the end of 2025, and even then, it’s unlikely that we will see a big change as we will likely need a hot CPI in December to price out another rate cut.

This article was written by Giuseppe Dellamotta at www.forexlive.com.