United States: PCE Inflation forecast and Fed stance – TD Securities

TD Securities analysts Eli Nir and Oscar Munoz have revised their September core PCE forecast downward to 0.32% month-on-month and headline PCE to 0.49%. PPI data revealed weaker components than expected, leading to the downgrade. Despite the weaker inflation outlook, TD Securities still believes inflation is high for the Federal Reserve and expects core and headline PCE year-on-year to be 3.1% and 3.6%, respectively.

The Federal Open Market Committee (FOMC) is anticipated to postpone any rate hike until December. Initially, TD Securities forecast had been 0.36% core PCE and 0.53% headline PCE, following a positive surprise in September CPI. The analysts now anticipate core PCE for September to be 0.32% m/m and the headline at 0.49%. While this remains a high figure for the Fed, TD Securities believes the central bank would prefer to wait until December before raising rates.

TD Securities' market-based core PCE forecast remains strong at 0.34% m/m, indicating a pickup in underlying inflation. The year-on-year PCE forecast is 3.1% for core and 3.6% for headline. The analysts still expect the FOMC to skip October and delay any rate hikes until December, as key officials seem hesitant to rush into more tightening despite the strong inflation numbers.