Spending, Income, And Inflation Data Do Not Support Fed Interest Rate Cuts

Authored by Mike Shedlock via mishtalk.com,

The BEA reports real income is down, but personal spending jumped anyway. Inflation data is mostly as expected, but much higher than the Fed would like to see.

Personal Income and Outlays, February 2024

Nothing about the BEA’s Personal Income and Outlays report for February 2024 suggests the Fed should cut interest rates at its next meeting.

Personal income increased $66.5 billion (0.3 percent at a monthly rate) in February.
Disposable personal income (DPI), personal income less personal current taxes, increased $50.3 billion (0.2 percent)
Personal consumption expenditures (PCE) increased $145.5 billion (0.8 percent).
The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
Real DPI decreased 0.1 percent in February.
Real PCE increased 0.4 percent; goods increased 0.1 percent and services increased 0.6 percent.

The Fed wants inflation at 2.0 percent. 0.3 percent per month times 12 months won’t come close to getting there.

You can twist the analysis however you want but you cannot twist the math.

Real Income and Spending Percent Change

Nominal spending was up 0.8 percent and real spending was up 0.4 percent. This suggests PCE inflation was on the high side of the range.

Rounded to a single decimal point, the reported 0.3 PCE price index month-over-month can be in the range of 0.25 to 0.34.

The PCE price index for January was 121.906. For February, it was 122.312. That’s a monthly increase of 0.333 percent, on the high end of the range. Multiply that by 12 and you are close to 4.0 percent price inflation annually.

This does not support Fed interest rate cuts.

Apartment List Reports Rent Prices Increase for the Second Month

Yesterday, I noted Apartment List Reports Rent Prices Increase for the Second Month

Also note Case-Shiller National Home Price Index Hits New Record High

Case-Shiller updated is home price data for January this week. Here are the key charts and a discussion of why it’s hard to tell if prices are rising or falling.

The Fed wants to cut in June, and that’s what the market expects (thanks to Fed jawboning), so most likely the Fed will cut unless the data is very hot.

Like Pavlov’s dogs, the market is salivating over rate cuts.