Kevin Burgett
Given that there will be no press conference or updated projections and that markets are well aligned with the Committee’s expectation for a hike in June, there is little desire to make substantial changes to the statement. However, given that 12-month core PCE inflation is now essentially at 2%, some change in the language about inflation is warranted (see our FOMC Briefing). We continue to expect four rate hikes this year.
BEA reported last week that real GDP was estimated to have advanced at a 2.3% pace in Q1, a bit stronger than expectations even though consumer spending moderated. The broad contours of the outlook remain (see our Macro Views). Final private demand advanced 1.7%, and government consumption and gross investment contributed about a quarter percentage point to real GDP growth. Equipment investment growth slowed to roughly 5% after several quarters near 10%, and consumer spending softened to around 1% from around 4%. Residential investment was flat following the strong Q4 rebound.
The Employment Cost Index increased more than anticipated. Both total compensation and private-sector wages and salaries advanced to levels last seen in 2008. Housing data were another bright spot, with sales of both new and existing homes increasing more than the consensus. Core capital goods data for March disappointed, with orders and shipments declining.
As for the price data, core PCE prices were reported to have advanced at a 2.5% (Q/Q) pace in Q1. This morning’s personal income and outlays report for March included the monthly path of core PCE prices underlying that figure. 12-month core PCE inflation rose to 1.9% in March 2018, as the decline in core consumer prices in March 2017 was a one-time shock that would lower the 12-month inflation rate until that reading passes out of the 12-month window. On a month-to-month basis, core PCE prices rose 0.15%, a slight moderation from the January and February numbers. 12-month headline PCE inflation rose to 2.0%.
There were no public remarks by FOMC participants last week because of the blackout period ahead of this week’s meeting.