US: Fed statistics influence expectations for interest rates – BBH

Key US Economic Indicators and Fed Policy Outlook

Elias Haddad from Brown Brothers Harriman draws attention to a packed US economic schedule that will influence the Dollar, featuring February PCE, March CPI, and the University of Michigan survey—all crucial for shaping inflation expectations. According to the bank, unless higher energy prices trigger broader inflation, the Federal Reserve may disregard the oil price spike. Upcoming FOMC minutes are expected to shed light on the threshold for potential rate increases.

Focus on Inflation Data and FOMC Meeting Insights

The minutes from the FOMC's March 17-18 session, set for release on Wednesday, are anticipated to reveal how stringent the criteria are for a rate hike. At that meeting, the FOMC maintained a hawkish stance, with Chair Jay Powell noting that a rate hike was discussed as a possible next step. Since March 26, market swaps have nearly eliminated expectations for a Fed rate increase, which previously implied about 25 basis points of tightening.

February's PCE report, due Thursday, will reflect inflation and consumer spending trends before the recent oil shock. Projections suggest headline PCE will remain at 2.8% year-over-year for the second month, while core PCE may decrease by 0.1 percentage points to 3.0% year-over-year. Real personal spending is forecast to grow by 0.2% month-over-month, up from 0.1% in January. The FOMC's March meeting set its median 2026 forecast for both headline and core PCE at 2.7%.

March CPI, arriving Friday, marks the first inflation reading since the onset of the war. A sharp increase in headline inflation is expected, driven by rising gasoline prices. Headline CPI is projected to reach a one-year peak at 3.4% year-over-year, compared to 2.4% in February, while core CPI is anticipated to climb to a five-month high at 2.7% year-over-year, up from 2.5% in February.

If inflation excluding energy remains stable, the Fed may choose not to react to the oil price surge by raising interest rates, especially given the mixed signals from the US labor market.

The April University of Michigan consumer sentiment survey will provide insight into whether long-term inflation expectations are firmly anchored. Analysts expect 5- to 10-year inflation expectations to rise by 0.3 percentage points to a six-month high of 3.5%, which could complicate the Fed's efforts to return inflation to its 2% target. Meanwhile, the March New York Fed survey of consumer expectations will be released today (4:00pm London, 11:00am New York).

This report was generated with the assistance of artificial intelligence and reviewed by an editor.