🇺🇸❗️Cable FX Macro Weekly Note: U.S. April Core PCE Deflator

**As seen in Risk In The Week report 05/19/23, subscribe at cablefxm.co.uk/reports

The March Core PCE Deflator came in unchanged from the prior at 4.6% Y/y, however, the February figure was revised higher to 4.7%. The release came close to the lower bound in the forecast range (4.5% - 5.5%). On a monthly basis, the Core PCE Deflator increased by 0.3%, this was in line with estimates and marked the slowest pace since November. As a reminder, April headline consumer prices came in below consensus at 4.9% Y/y, the core metric rose by 5.5%. Since March, headline CPI is rising below the pace seen in the figure excluding volatile components. As of now, the Fed’s favorite measure of inflation remains 2.3 percentage points above target, the latest SEP showed the Fed expecting the metric to slow to 3.6% by end of the year and to 2.6% by 2024. Despite the easing in prices, the labour market remains very tight and financial conditions have failed to show a sustainable trend or tightening (Check Financial Conditions Section, Macro Walk Report). Recently, Fed officials have been vocal about the need to keep rates high, while some hinted to further tightening ahead. The desk at Goldman Sachs noted that the recent banking turmoil has been surprisingly limited, they expect the FOMC to keep rates unchanged at a restrictive level well into 2024. This view goes against the aggressive pricing for rate cuts in 2023, the market had seen about 75bps of rate cuts for this year, some of this has been pared back last week. Goldman forecasts the U.S. economy expanding by 1.6% in 2023 and puts a 35% chance of a recession over the next 12 months (both figures are outside the consensus). For the Core PCE Index, Goldman pencils the metric to slow to 3.4% Y/y by end of this year and to 2.3% by end of 2024.