Last week, headline Personal Consumption Expenditures (PCE) Price Index inflation accelerated to 5.4%, while core PCE inflation came in at 4.7%—both higher than what was expected. With inflation remaining persistent, and the economy holding strong, it’s likely that the Federal Reserve will need to step on the brakes harder and be more hawkish. With that comes continued downside risks for equity and credit markets. More recently, the Fed has started to focus more of its attention on “supercore” inflation—essentially defined as the service sector, excluding housing. Unfortunately for the central bank, supercore inflation also moved higher in January. That means that even with the newer, more narrow measures that the Fed is prioritizing, we’re not seeing improvement in getting closer to the 2% inflation target.
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