While the disinflationary tailwind from goods is likely to peter out as the year progresses, slower growth in services prices should keep core inflation on a downward trajectory. Moderating shelter inflation, easing pressure on goods-related services like auto insurance and cooling employment cost growth look set to provide some relief to services inflation as we move through the year. Progress is likely to be more evident in the core CPI than the core PCE, however, given the greater weighting of housing and insurance in the CPI that have contributed to a historically large wedge between the two measures.
Yet another month of strong employment and inflation data inflation suggest that the ten FOMC participants who penciled in three or more cuts at the March meeting are increasingly unlikely to see that much easing realized. We now project two 25 bps rate cuts in Q3 and Q4 of this year as our base case for the fed funds rate. - Wells Fargo
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