PCE, US Dollar Index, Consumer Attitudes

April 29, 2016

Friday – April 29

Inflation met tame expectations in March as the Core Personal Consumption Expenditures (PCE) rose an anemic 0.1%, down from the 0.2% in February. Year-over-year Core PCE rose 1.6%, as expected and below the February reading of 1.7%. The Core PCE is the favored inflation gauge for the Fed. In the absence of inflation pressures, a not-so-strong economy in the U.S., a weak global economy and the 2016 election, the Fed may not be in any rush to raise rates anytime soon. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.

The U.S. dollar index continues its slide lower now hovering near 93.0, an 11-month low, signaling the Fed is on hold with interest rates. Higher interest rates in a country generally increases the value of that country’s currency relative to nations offering lower interest rates and vice versa. The odds of an interest rate hike in June has fallen to a measly 12%. The weak dollar has also helped fuel the rise in oil prices.

Consumer attitudes declined in April due to bleaker prospects on the U.S. economy. The Consumer Sentiment Index fell to 89 in April, below the 91 recorded in March. However, a spokesperson for the index said that the gloomy outlook could be due in part to the presidential campaign and that the decline is far short of indicating a recession. Consumers’ current views were more optimistic.