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I'm Nathan Hager in New York, and we are getting some breaking economic data crossing the Bloomberg terminal Personal Consumption Expenditures Price Index for February. This is the Fed's preferred gage of inflation. It comes in at two point eight percent on a year over year basis. That is the core deflator, which leaves out housing rents, which is very volatile in terms of the price pressures that we see. The personal income deflator for the month of February on a month over month basis comes in at three tenths of one percent. That was just shy of what economists surveyed by Bloomberg we're expecting on a four tenths of one percent read, so that's unchanged from the month of January. Personal income comes in a little light at three tenths of one one percent, that's down from one percent in January. And personal spending comes in at eight tenths of one percent. That's quite a bit higher than economists surveyed by Bloomberg had been expecting, and a big jump from a two tenths of one percent read in January. Let's bring in Bloomberg's International Economics and Policy correspondent Mike McKee with a little bit more context on these numbers. In terms of the PC to flavor MIC, it looks like it comes in bang in line with expectations.

I'm Nathan Hager in New York, and we are getting some breaking economic data crossing the Bloomberg terminal Personal Consumption Expenditures Price Index for February. This is the Fed's preferred gage of inflation. It comes in at two point eight percent on a year over year basis. That is the core deflator, which leaves out housing rents, which is very volatile in terms of the price pressures that we see. The personal income deflator for the month of February on a month over month basis comes in at three tenths of one percent. That was just shy of what economists surveyed by Bloomberg we're expecting on a four tenths of one percent read, so that's unchanged from the month of January. Personal income comes in a little light at three tenths of one one percent, that's down from one percent in January. And personal spending comes in at eight tenths of one percent. That's quite a bit higher than economists surveyed by Bloomberg had been expecting, and a big jump from a two tenths of one percent read in January. Let's bring in Bloomberg's International Economics and Policy correspondent Mike McKee with a little bit more context on these numbers. In terms of the PC to flavor MIC, it looks like it comes in bang in line with expectations.

The headline number is a little bit lower three tenths than was expected at four tenths was the consensus, but of course this is very tight numbers and rounding is probably involved here. We did see inflation revised up on a month over month basis for January from three tenths to four tenths, so we do see a decline there in the month over month, but the year over year rises a little bit from two point forward a two point five percent. That's probably base effects. The core comes in much lower than the prior month. In January it was up half a percent, now it's only up three tenths, and the core deflator on a year over year basis is down to tick two point eight percent for two point nine percent, so it's sort of a mixed picture here. In terms of prices, goods prices increased about half a percent, prices for services increased three tenths of a percent. Now, goods prices had been the major deflationary force over the last several months. So the fact that goods prices increased not particularly good news. We'll look for the breakdown on what happened. Their energy prices were up two point three percent, so that was the major problem. I think. With the good side, food prices increased just a tenth of eight percent, so good news there. So it looks Nathan like it's sort of a mixed picture. It is a little bit better than anticipated, but for the Fed it is not enough to push them to want to make any changes in their timing for rate cuts.

The headline number is a little bit lower three tenths than was expected at four tenths was the consensus, but of course this is very tight numbers and rounding is probably involved here. We did see inflation revised up on a month over month basis for January from three tenths to four tenths, so we do see a decline there in the month over month, but the year over year rises a little bit from two point forward a two point five percent. That's probably base effects. The core comes in much lower than the prior month. In January it was up half a percent, now it's only up three tenths, and the core deflator on a year over year basis is down to tick two point eight percent for two point nine percent, so it's sort of a mixed picture here. In terms of prices, goods prices increased about half a percent, prices for services increased three tenths of a percent. Now, goods prices had been the major deflationary force over the last several months. So the fact that goods prices increased not particularly good news. We'll look for the breakdown on what happened. Their energy prices were up two point three percent, so that was the major problem. I think. With the good side, food prices increased just a tenth of eight percent, so good news there. So it looks Nathan like it's sort of a mixed picture. It is a little bit better than anticipated, but for the Fed it is not enough to push them to want to make any changes in their timing for rate cuts.

Let's talk a little bit about the revisions as well, Mike. We've got those numbers just coming in as well.

Let's talk a little bit about the revisions as well, Mike. We've got those numbers just coming in as well.

Yes, as I mentioned the personal spending numbers and eight tenths unrevised real personal spending, though was revised a little bit lower from a last month inflation adjusted basis. In January was down two tenths. It had originally been reported down one tenth and now it's up four tenths for February. So again, that is a good news number for the Fed and for probably the White House because it shows that people are getting a little bit ahead of inflation.

Yes, as I mentioned the personal spending numbers and eight tenths unrevised real personal spending, though was revised a little bit lower from a last month inflation adjusted basis. In January was down two tenths. It had originally been reported down one tenth and now it's up four tenths for February. So again, that is a good news number for the Fed and for probably the White House because it shows that people are getting a little bit ahead of inflation.

So let's talk a little bit more about what's driving these latest numbers right now. You mentioned that the goods side of the inflation picture came in a little bit hotter in terms of the fact that this seems to be coming in as a mixed read. What does that tell us about how the Fed could react.

So let's talk a little bit more about what's driving these latest numbers right now. You mentioned that the goods side of the inflation picture came in a little bit hotter in terms of the fact that this seems to be coming in as a mixed read. What does that tell us about how the Fed could react.

Well, they're going to look past this, They're gonna take it on board, but they don't meet again until May first, so they'll have another indicator for the March numbers just before their meeting at the end of March, and if they see this kind of progress, it's probably not going to be enough to get them to make any kind of moves in May. We're still seeing the inflation numbers a little bit on the high side for them. They use the PCE as their target, and their target of course two percent, and now they're two and a half percent, so they'd want to see more progress there. They'd want to see more progress on the core deflator, because the only reason it looks better today is because it was revised up in January.

Well, they're going to look past this, They're gonna take it on board, but they don't meet again until May first, so they'll have another indicator for the March numbers just before their meeting at the end of March, and if they see this kind of progress, it's probably not going to be enough to get them to make any kind of moves in May. We're still seeing the inflation numbers a little bit on the high side for them. They use the PCE as their target, and their target of course two percent, and now they're two and a half percent, so they'd want to see more progress there. They'd want to see more progress on the core deflator, because the only reason it looks better today is because it was revised up in January.

Bloomberg Internet National Economics and Policy correspondent Michael McKee with us as we continue to analyze this preferred gauge of inflation for the Federal Reserve. The PC deflator coming in a little bit hotter than expected, with two and a half percent year over year read in terms of the headline number, and three tenths of one percent also unchanged on a month over month basis from the month of January. Let's get some more analysis.

Bloomberg Internet National Economics and Policy correspondent Michael McKee with us as we continue to analyze this preferred gauge of inflation for the Federal Reserve. The PC deflator coming in a little bit hotter than expected, with two and a half percent year over year read in terms of the headline number, and three tenths of one percent also unchanged on a month over month basis from the month of January. Let's get some more analysis.

Now.

Now.

We're joined by Tom Porcelli, the chief US economist at p GYM Fixed Income. Tom, great to have you with us on this good Friday. Your reaction to these numbers, Yeah.

We're joined by Tom Porcelli, the chief US economist at p GYM Fixed Income. Tom, great to have you with us on this good Friday. Your reaction to these numbers, Yeah.

I mean, look, I think Mike has always nailed it. I mean I think that it's sort of a mixed bag here. You know. I think people will look at the spending number and I think, you know, let's say, hey, you know, the consumer is really sort of crushing it here in Q one. But the reality is, I mean this came with a drawdown in saving, an additional drawdown in saving, which is you know again it's it's it's sustainable only to a point, you know, and and and so I don't like that you have this big burst in spending with income that was, you know, sort of fairly modest. Now again, I would say to the mixed bag idea, if you look at wages. Wages were pretty pretty decent. But you know the problem for me, and you know, this is something we've been flagging if you just look at disposable income, right, I mean, that's really where the rubber meets the road on this, you know, disposable income, real disposal income to be specific. You know, it's it's it's been flat. I mean it actually it fell slightly month on months in this report, but you know it's been pretty flat now over the last couple of months. That again, I think just speaks to sort of the long term sustainability of you know, sort of the kind of consumption numbers that we've seen over the last couple of quarters, which is to say, we don't think you know, you're you're looking at a sort of a ripping backdrop here. I mean, I think things are just sort of just moving along at a sort of a you know, a decent pace. It's been our call, you know that that twenty four would be a pretty reasonable year from a growth perspective. But I think there's enough in here and enough being happening that we know, we sort of wonder about the ability for the consumer to really sort of press this meaningfully. More from here. The last thing I'll say on the inflation numbers. You know, look, I think they basically came in as was expected, particularly on the core. You know, core was a three tenths and it actually rounded up to three tenths. You know, it was actually point two six again for whatever that's worth. But I think this is the kind of movement that you know, we've been expecting. I think this is the kind of movement that the Fed continues to expect. So I think unbalanced, there's no big surprises here. I mean, I think whatever you thought about the sort of the backdrop before this number, I think you're going to continue to think that.

I mean, look, I think Mike has always nailed it. I mean I think that it's sort of a mixed bag here. You know. I think people will look at the spending number and I think, you know, let's say, hey, you know, the consumer is really sort of crushing it here in Q one. But the reality is, I mean this came with a drawdown in saving, an additional drawdown in saving, which is you know again it's it's it's sustainable only to a point, you know, and and and so I don't like that you have this big burst in spending with income that was, you know, sort of fairly modest. Now again, I would say to the mixed bag idea, if you look at wages. Wages were pretty pretty decent. But you know the problem for me, and you know, this is something we've been flagging if you just look at disposable income, right, I mean, that's really where the rubber meets the road on this, you know, disposable income, real disposal income to be specific. You know, it's it's it's been flat. I mean it actually it fell slightly month on months in this report, but you know it's been pretty flat now over the last couple of months. That again, I think just speaks to sort of the long term sustainability of you know, sort of the kind of consumption numbers that we've seen over the last couple of quarters, which is to say, we don't think you know, you're you're looking at a sort of a ripping backdrop here. I mean, I think things are just sort of just moving along at a sort of a you know, a decent pace. It's been our call, you know that that twenty four would be a pretty reasonable year from a growth perspective. But I think there's enough in here and enough being happening that we know, we sort of wonder about the ability for the consumer to really sort of press this meaningfully. More from here. The last thing I'll say on the inflation numbers. You know, look, I think they basically came in as was expected, particularly on the core. You know, core was a three tenths and it actually rounded up to three tenths. You know, it was actually point two six again for whatever that's worth. But I think this is the kind of movement that you know, we've been expecting. I think this is the kind of movement that the Fed continues to expect. So I think unbalanced, there's no big surprises here. I mean, I think whatever you thought about the sort of the backdrop before this number, I think you're going to continue to think that.

Oh right up in Tom with a couple of numbers to lead people up to speed on some of the things that you're saying here. Wages and salaries were up eight tenths, which is a very large gain after three tenths in January. Interestingly enough, because the market has risen so much much, we should have seen I would have thought more income on assets, but personal interest income fell four tenths and dividend income down by three point seven percent. So I guess people aren't selling at this point, they're just reinvesting. You mentioned the real personal disposable income. It was down a tenth after being flat last month. That's the first decline since September. So you're right about the issue here of whether or not we're seeing people continually able to spend. It looks like from their from their wages and salaries they can. You mentioned the savings rate three point six percent compared to four point one percent, which is more important the savings rate or raises in your weekly paycheck.

Oh right up in Tom with a couple of numbers to lead people up to speed on some of the things that you're saying here. Wages and salaries were up eight tenths, which is a very large gain after three tenths in January. Interestingly enough, because the market has risen so much much, we should have seen I would have thought more income on assets, but personal interest income fell four tenths and dividend income down by three point seven percent. So I guess people aren't selling at this point, they're just reinvesting. You mentioned the real personal disposable income. It was down a tenth after being flat last month. That's the first decline since September. So you're right about the issue here of whether or not we're seeing people continually able to spend. It looks like from their from their wages and salaries they can. You mentioned the savings rate three point six percent compared to four point one percent, which is more important the savings rate or raises in your weekly paycheck.

Yeah, I mean, you know, they obviously both matter. I mean they matter for different reasons, though, I think that's a really important idea. It's it's great that, you know, we continue to see income at large, right through through wages, through the wage channel, continue to move along at a at a pretty reasonable pace. But again, this this I think you know, we're trying to think big picture here. So the big picture thesis is, well, look, how has the consumer been driving spending. And they've been driving spending through a combination of drawing down saving and then again we're not talking about the excess savings thing, right that that long that story is long since gone. But you know what we're talking about now is cutting into the muscle of saving and so if you look at you know, sort of the bottom ninety nine percent, right, so just excluding the top one percent, what you see is that saving is now below where you would have been in a sort of a pre COVID baseline estimate. You know, that to me is noteworthy. And then you have to also consider there's sort of the other channel through which the consumer has really been able to sort of drive spending, and that's that's through credit usage, which again you know these are these are things that can persist, but you know that that this is not necessarily the healthy way of doing that spending.

Yeah, I mean, you know, they obviously both matter. I mean they matter for different reasons, though, I think that's a really important idea. It's it's great that, you know, we continue to see income at large, right through through wages, through the wage channel, continue to move along at a at a pretty reasonable pace. But again, this this I think you know, we're trying to think big picture here. So the big picture thesis is, well, look, how has the consumer been driving spending. And they've been driving spending through a combination of drawing down saving and then again we're not talking about the excess savings thing, right that that long that story is long since gone. But you know what we're talking about now is cutting into the muscle of saving and so if you look at you know, sort of the bottom ninety nine percent, right, so just excluding the top one percent, what you see is that saving is now below where you would have been in a sort of a pre COVID baseline estimate. You know, that to me is noteworthy. And then you have to also consider there's sort of the other channel through which the consumer has really been able to sort of drive spending, and that's that's through credit usage, which again you know these are these are things that can persist, but you know that that this is not necessarily the healthy way of doing that spending.

And just to reiterate, the Fed's preferred gauge of underlying inflation did cool last month after an even bigger January increase. When you factor in the revisions, the core Personal Consumption Expenditures price index stripping out food and energy increased three tenths percent from January, following a half percent reading in January. That was the biggest back to back gain in the year two point eight percent on a year over year basis. Nathan Hager in New York with more analysis of these inflation numbers and talking about the spending that we continue to see in this economy, the consumer continuing to hold up. Is there still a concern Tom that that is being driven by credit card usage by pulling into debt and can savings bolster that when we have the kind of inflation of elevated interest rates that we're seeing in this economy right now.

And just to reiterate, the Fed's preferred gauge of underlying inflation did cool last month after an even bigger January increase. When you factor in the revisions, the core Personal Consumption Expenditures price index stripping out food and energy increased three tenths percent from January, following a half percent reading in January. That was the biggest back to back gain in the year two point eight percent on a year over year basis. Nathan Hager in New York with more analysis of these inflation numbers and talking about the spending that we continue to see in this economy, the consumer continuing to hold up. Is there still a concern Tom that that is being driven by credit card usage by pulling into debt and can savings bolster that when we have the kind of inflation of elevated interest rates that we're seeing in this economy right now.

Yeah, it can, it can it can persist. I mean we've seen this right historically. I mean to say, if if the consumer wants, they could draw down saving to zero, you know, in over three point six percent, So so it can certainly happen, and I think it can persist. And I think, you know, if I think about our forecast for this year and even into next year, you know, I think you're looking at a sort of you know, well again what will be sort of a trend like growth. So I have no I have no challenge with the actual numbers. What I have the challenge. What I have a challenge with is is how it's being achieved, because that that that's not enduring, right, I mean, you don't, you don't you don't generate and enduring you know, slash lasting economic expansion when when when that's doing the driving I think what we need to really look to is the sort of the labor backdrop, and look, I think that there's certainly some slowing that's taking place in pockets of the labor backdrop. I think that's, you know, been pretty apparent now for the lack tendful of months. I am encouraged by the wages and salaries increase. We'll want to dig into that more just to sort of see what the details were on the back of this number. But that kind of story for us really sort of fits snugly into our view. I mean, we think you can easily run at a one and a half to two percent pace this year, and I don't see any reason to sort of alter that view at this point.

Yeah, it can, it can it can persist. I mean we've seen this right historically. I mean to say, if if the consumer wants, they could draw down saving to zero, you know, in over three point six percent, So so it can certainly happen, and I think it can persist. And I think, you know, if I think about our forecast for this year and even into next year, you know, I think you're looking at a sort of you know, well again what will be sort of a trend like growth. So I have no I have no challenge with the actual numbers. What I have the challenge. What I have a challenge with is is how it's being achieved, because that that that's not enduring, right, I mean, you don't, you don't you don't generate and enduring you know, slash lasting economic expansion when when when that's doing the driving I think what we need to really look to is the sort of the labor backdrop, and look, I think that there's certainly some slowing that's taking place in pockets of the labor backdrop. I think that's, you know, been pretty apparent now for the lack tendful of months. I am encouraged by the wages and salaries increase. We'll want to dig into that more just to sort of see what the details were on the back of this number. But that kind of story for us really sort of fits snugly into our view. I mean, we think you can easily run at a one and a half to two percent pace this year, and I don't see any reason to sort of alter that view at this point.

We had a little something here on the markets because we talked about how dividend and interest income was down during the month. We also see that the contributions to inflation from Wall Street are down significantly, I guess because maybe everybody's just reinvesting and not taking profits. But financial services fees and commissions just up a tenth of a percent after rising more than two percent last month, So a little bit less inflation pressure coming out of Wall Street. What we had called the pogo problem. As we do well on Wall Street, it increases inflation. But that brings up another question for you, Tom, and that is the wealth effect. The FED worries that the wealth effect is going to drive the economy longer. Do we see that really from the gains that we have seen in equity markets? Are people out spending that money or is that a subset of people who are making money who don't really have a marginal propensity to consume that is all that very high?

We had a little something here on the markets because we talked about how dividend and interest income was down during the month. We also see that the contributions to inflation from Wall Street are down significantly, I guess because maybe everybody's just reinvesting and not taking profits. But financial services fees and commissions just up a tenth of a percent after rising more than two percent last month, So a little bit less inflation pressure coming out of Wall Street. What we had called the pogo problem. As we do well on Wall Street, it increases inflation. But that brings up another question for you, Tom, and that is the wealth effect. The FED worries that the wealth effect is going to drive the economy longer. Do we see that really from the gains that we have seen in equity markets? Are people out spending that money or is that a subset of people who are making money who don't really have a marginal propensity to consume that is all that very high?

So I will say that I believe in the wealth effect in the extremes, and I think it's very fair to say that we're in an extreme. I mean, if you think about sort of the single biggest asset for most people in this country, the single biggest outset at their house. And I think what people see is that their home prices have accelerated and accelerated in a very notable way. And I don't doubt for second that that feeds into this sort of hey, you know, I'm actually doing pretty good here, and that emboldens people to continue to go out and feel comfortable spending. Of course, I think what we have to recognize is it's great that home prices have written as much as they have, but you know, any of that home equity is trapped, right, This trapped because we're in a higher rate environment and it becomes incredibly complicated or very expensive for people to basically extract that money. So you know, again, i'd be careful with that idea. I mean again, I don't doubt for a second that it's happening, but it's paper wealth because because of high rates, no one can extract any of that.

So I will say that I believe in the wealth effect in the extremes, and I think it's very fair to say that we're in an extreme. I mean, if you think about sort of the single biggest asset for most people in this country, the single biggest outset at their house. And I think what people see is that their home prices have accelerated and accelerated in a very notable way. And I don't doubt for second that that feeds into this sort of hey, you know, I'm actually doing pretty good here, and that emboldens people to continue to go out and feel comfortable spending. Of course, I think what we have to recognize is it's great that home prices have written as much as they have, but you know, any of that home equity is trapped, right, This trapped because we're in a higher rate environment and it becomes incredibly complicated or very expensive for people to basically extract that money. So you know, again, i'd be careful with that idea. I mean again, I don't doubt for a second that it's happening, but it's paper wealth because because of high rates, no one can extract any of that.

And tom as you know, we're going to be hearing from Chairman Powell in just a couple hours here eleven thirty am Wall Street time. He's going to be taking part in a moderated discussion. Do you expect these numbers are really going to change the message that we hear from Powell? As he's sounded a little at least a little bit more comfortable with the way the inflation roadmap has been going up to this point.

And tom as you know, we're going to be hearing from Chairman Powell in just a couple hours here eleven thirty am Wall Street time. He's going to be taking part in a moderated discussion. Do you expect these numbers are really going to change the message that we hear from Powell? As he's sounded a little at least a little bit more comfortable with the way the inflation roadmap has been going up to this point.

Yeah, that's it's a resounding no. I mean that these numbers will not change anything for Powell. He literally just spoke there will be no reason for him to alter any of his messaging. Again, I think you know, this is something that they were looking for, particularly this core deflator, you know, hovering here at it now at two eight I think that this is this is the path that they were expecting from from an inflation perspective, and you know, and and again, I think the one thing that really came through very loud and clear during his last press conference was this this idea of over time, right. He kept on saying. In fact, I think he literally even said, we stress over time inflation will improve. Uh. And he said the multiple times. And I think that that that that fits very nicely with the numbers that we just saw. It is continuing to prove improve over time. I think the other thing that was really interesting, and this is probably more micro, but on Powell, I thought it was really interesting that he was that he acknowledged sort of these these base effects that we're going to start to bump up against in the second half of the year. You know, it's it's going to be a challenge for for inflation to really improve in earnest from a month on month perspective, because you're going to have these easy year ago comps, excuse me, these unfavorable year ago comps in the second half of the year. So if you think about excuse me, if you think about sort of a direction of inflation, you know, you'll continue to drift lower. I mean, here we are at what two seven or excuse me, two eight rounds up to two eight, and I think you'll get probably down to a round two four ish in the next few months. But as you roll into the second half of the year, it's going to start to accelerate again. You know, you can get easily back up to about two point seven percent after hitting two point four percent around middle of the year, just because of comps and I and one of the reasons why I love that he said that is because he's I think, you know, trying to pre empt what could be what will be a conversation around hey, but inflation is accelerating again. But again it's important to note that it's comp challenge, you know, that's and just to be clear, sorry to make sure this is abundantly clear. If you print two tents month on month between now and the end of the year, that's how those year ago comps will unfold. You'll get it down to his lowes two four, and then you can get that bounced back up to around two seven. So I like that he's sort of, you know, trying to draw attention to that. But again, yes to The short answer to your question is no, I don't think that there's anything here that will that will alter his his view on what he already.

Yeah, that's it's a resounding no. I mean that these numbers will not change anything for Powell. He literally just spoke there will be no reason for him to alter any of his messaging. Again, I think you know, this is something that they were looking for, particularly this core deflator, you know, hovering here at it now at two eight I think that this is this is the path that they were expecting from from an inflation perspective, and you know, and and again, I think the one thing that really came through very loud and clear during his last press conference was this this idea of over time, right. He kept on saying. In fact, I think he literally even said, we stress over time inflation will improve. Uh. And he said the multiple times. And I think that that that that fits very nicely with the numbers that we just saw. It is continuing to prove improve over time. I think the other thing that was really interesting, and this is probably more micro, but on Powell, I thought it was really interesting that he was that he acknowledged sort of these these base effects that we're going to start to bump up against in the second half of the year. You know, it's it's going to be a challenge for for inflation to really improve in earnest from a month on month perspective, because you're going to have these easy year ago comps, excuse me, these unfavorable year ago comps in the second half of the year. So if you think about excuse me, if you think about sort of a direction of inflation, you know, you'll continue to drift lower. I mean, here we are at what two seven or excuse me, two eight rounds up to two eight, and I think you'll get probably down to a round two four ish in the next few months. But as you roll into the second half of the year, it's going to start to accelerate again. You know, you can get easily back up to about two point seven percent after hitting two point four percent around middle of the year, just because of comps and I and one of the reasons why I love that he said that is because he's I think, you know, trying to pre empt what could be what will be a conversation around hey, but inflation is accelerating again. But again it's important to note that it's comp challenge, you know, that's and just to be clear, sorry to make sure this is abundantly clear. If you print two tents month on month between now and the end of the year, that's how those year ago comps will unfold. You'll get it down to his lowes two four, and then you can get that bounced back up to around two seven. So I like that he's sort of, you know, trying to draw attention to that. But again, yes to The short answer to your question is no, I don't think that there's anything here that will that will alter his his view on what he already.

Said, and we will get that message at eleven thirty am Wall Street Time live coverage of Chairman Powell's moderated remarks at the San Francisco Fed later on this morning. Tom, thanks for being with us as we dig a little deeper into this latest inflation data. Tom Porcelli there, the chief US economist at PGIM Fixed Income, and I'm Nathan Hayger along with Bloomberg International Economics and Policy Corps. Responded Michael McKee. As we continue to get some more analysis of the PCE deflator. We're joined now by Sarah House, the senior economist at Wells Fargo. So it seems, Sarah, a bit of a mixed bag. The bumpy road to disinflation seems to continue following these numbers.

Said, and we will get that message at eleven thirty am Wall Street Time live coverage of Chairman Powell's moderated remarks at the San Francisco Fed later on this morning. Tom, thanks for being with us as we dig a little deeper into this latest inflation data. Tom Porcelli there, the chief US economist at PGIM Fixed Income, and I'm Nathan Hayger along with Bloomberg International Economics and Policy Corps. Responded Michael McKee. As we continue to get some more analysis of the PCE deflator. We're joined now by Sarah House, the senior economist at Wells Fargo. So it seems, Sarah, a bit of a mixed bag. The bumpy road to disinflation seems to continue following these numbers.

Your thoughts, Yeah, I think that's right, especially when we look at inflation. So we did see some bumps in terms of the underlying movers shift around a bit. So this month we actually saw some more moderation in terms of the services side, but you did see the goods inflation pick up a little bit on a month of a month basis, which again I think just speaks to that month a month. You are going to see some volatility in these numbers, but I think overall you're still seeing signs of at least the overall trend grinding lower. But it's certainly a slow grind that we're seeing.

Your thoughts, Yeah, I think that's right, especially when we look at inflation. So we did see some bumps in terms of the underlying movers shift around a bit. So this month we actually saw some more moderation in terms of the services side, but you did see the goods inflation pick up a little bit on a month of a month basis, which again I think just speaks to that month a month. You are going to see some volatility in these numbers, but I think overall you're still seeing signs of at least the overall trend grinding lower. But it's certainly a slow grind that we're seeing.

It's Michael McKee. I'm looking at the super core number for pee. We haven't talked about that yet this morning, and on a month over a month basis, it's up by two tenths after seven tenths gained the month before. So that's probably going to make the Fed and j POL happy because they've been particularly worried about services prices.

It's Michael McKee. I'm looking at the super core number for pee. We haven't talked about that yet this morning, and on a month over a month basis, it's up by two tenths after seven tenths gained the month before. So that's probably going to make the Fed and j POL happy because they've been particularly worried about services prices.

Yeah, I think that's at least one of the more encouraging developments of this morning's data in terms of the inflation trajectory. But when we think about the services side, you know, we really do need this to start shipping in more so. We've had significant goods goods disinflation over the past year. So if you look at just the change in the year of rear rates of inflation, basically two thirds of it has had two thirds of the decline has come from the good side, and so given how big a share services is, we need to see that to clerate more. So this is a good month, but the Fed's certainly going to need to see more months like this in terms of that services inflation subsiding a little bit.

Yeah, I think that's at least one of the more encouraging developments of this morning's data in terms of the inflation trajectory. But when we think about the services side, you know, we really do need this to start shipping in more so. We've had significant goods goods disinflation over the past year. So if you look at just the change in the year of rear rates of inflation, basically two thirds of it has had two thirds of the decline has come from the good side, and so given how big a share services is, we need to see that to clerate more. So this is a good month, but the Fed's certainly going to need to see more months like this in terms of that services inflation subsiding a little bit.

Well, what's the.

Well, what's the.

Outlook then about whether we are going to more months like this. Something else we haven't talked about is the disruption at the port of Baltimore after the bridge collapse, and think about what effect that could have on goods inflation down the line. I mean, is that something that we can factor in at this point.

Outlook then about whether we are going to more months like this. Something else we haven't talked about is the disruption at the port of Baltimore after the bridge collapse, and think about what effect that could have on goods inflation down the line. I mean, is that something that we can factor in at this point.

I think it's really hard to put a number around what that's going to do, but I think it certainly doesn't help in terms of seeing further goods deflation or at least a still pretty low rate of goods inflation. So it's just one more hurdle. We've seen a lot of the benefits from the initial unwinding of supply chains already feed through, and we look at even before we saw this Baltimore bridge collapse, that supply chain pressures have really neutralized. So I think when we look out over the course of this year, you aren't going to see as much help coming from the goods side in terms of in terms of the core, and so again that means that services are going to have to pick up the baton and we are going to need to see more inflation coming from the services side if we're going to keep moving back towards two percent.

I think it's really hard to put a number around what that's going to do, but I think it certainly doesn't help in terms of seeing further goods deflation or at least a still pretty low rate of goods inflation. So it's just one more hurdle. We've seen a lot of the benefits from the initial unwinding of supply chains already feed through, and we look at even before we saw this Baltimore bridge collapse, that supply chain pressures have really neutralized. So I think when we look out over the course of this year, you aren't going to see as much help coming from the goods side in terms of in terms of the core, and so again that means that services are going to have to pick up the baton and we are going to need to see more inflation coming from the services side if we're going to keep moving back towards two percent.

So is there much more that the FED can do to get that services side of the equation down?

So is there much more that the FED can do to get that services side of the equation down?

I think so. They've had a lot of help in terms of the supply side on services too, when we think about the labor market and just how much we've seen labor force growth improve, and that's been a big help in terms of reducing those wage pressures. But when we look at some of the wage numbers, they're getting close to where the FED would need them to be, but not there yet, and where we still haven't hit two percent inflation, let alone on a sustained basis. I think this is going to be a waiting game. So we've already seen expectations for any easing get pushed out a little bit, and I think until we see I think more improvement on the services side, it's going to continue to be a matter of Okay, So do you get that timing of when the FED be against the cut rates start pushing back and see that even move further.

I think so. They've had a lot of help in terms of the supply side on services too, when we think about the labor market and just how much we've seen labor force growth improve, and that's been a big help in terms of reducing those wage pressures. But when we look at some of the wage numbers, they're getting close to where the FED would need them to be, but not there yet, and where we still haven't hit two percent inflation, let alone on a sustained basis. I think this is going to be a waiting game. So we've already seen expectations for any easing get pushed out a little bit, and I think until we see I think more improvement on the services side, it's going to continue to be a matter of Okay, So do you get that timing of when the FED be against the cut rates start pushing back and see that even move further.

So can you say at this point whether a read like this will change the equation in terms of what the FED is thinking about the rate path at this point, I mean, they've already penciled in. I think in the dot plot the median is still three. I mean, does that really change things after a reading like this.

So can you say at this point whether a read like this will change the equation in terms of what the FED is thinking about the rate path at this point, I mean, they've already penciled in. I think in the dot plot the median is still three. I mean, does that really change things after a reading like this.

I don't think so. I mean, especially if we're focused on inflation. That came in pretty much in line. It was a touch softer for going out to two decimals, but it came on top of the upward versions of January, so it doesn't really change the picture. And at the end of the day, you still have consumers that are out there willing to spend, and so that's going to make it harder for that demand side to chip in and help drive inflation lower. As we maybe are seeing some of the supply side benefits begin to fade this year, as we have seen much more normalization and supply chains, and I think you're going to get only more incremental growth and labor supply. After two big years of labor force growth.

I don't think so. I mean, especially if we're focused on inflation. That came in pretty much in line. It was a touch softer for going out to two decimals, but it came on top of the upward versions of January, so it doesn't really change the picture. And at the end of the day, you still have consumers that are out there willing to spend, and so that's going to make it harder for that demand side to chip in and help drive inflation lower. As we maybe are seeing some of the supply side benefits begin to fade this year, as we have seen much more normalization and supply chains, and I think you're going to get only more incremental growth and labor supply. After two big years of labor force growth.

We did see some improvement, very small improvement, but improvement in housing prices in PCE of four tenths for the month after a five tense gain last month. So I guess I would ask, partly from your national experience, Sarah, but also from being in the Charlotte area, which has been a hot real estate area, are we finally going to start to see the declines that the FED has been looking for in housing?

We did see some improvement, very small improvement, but improvement in housing prices in PCE of four tenths for the month after a five tense gain last month. So I guess I would ask, partly from your national experience, Sarah, but also from being in the Charlotte area, which has been a hot real estate area, are we finally going to start to see the declines that the FED has been looking for in housing?

I think there's still some room to go in terms of the housing disinflation story. So obviously that's been a big part of the stronger prints to start the year, even as again we did see a little bit more moderation in the February numbers here today. But I think when we look at everything that we're seeing in terms of the private sector measures, that there is still more disinflation in training to come in housing. I think the big question is the magnitude of how much further that falls, and of course some of the timing. So I think we feel pretty confident in the direction that it seems like Chuirpal feels pretty confident in the direction he spoke to out specifically in his press conference, but there's still a lot of questions around the timing and if it takes too long and you start to see that impulse from the downward impulse from goods deflation begin to peter out. That's going to be a contributing factor to inflation being a bit stickier as we move through this year.

I think there's still some room to go in terms of the housing disinflation story. So obviously that's been a big part of the stronger prints to start the year, even as again we did see a little bit more moderation in the February numbers here today. But I think when we look at everything that we're seeing in terms of the private sector measures, that there is still more disinflation in training to come in housing. I think the big question is the magnitude of how much further that falls, and of course some of the timing. So I think we feel pretty confident in the direction that it seems like Chuirpal feels pretty confident in the direction he spoke to out specifically in his press conference, but there's still a lot of questions around the timing and if it takes too long and you start to see that impulse from the downward impulse from goods deflation begin to peter out. That's going to be a contributing factor to inflation being a bit stickier as we move through this year.

Well, let me circle back to one more thing before we let you go here, and that is a personal income wages and salaries up eight tenths of eight percent after just three tenths in January. Does that tell you anything in particular? Is that noise or are companies having to pay up more to attract workers with still a strong labor market.

Well, let me circle back to one more thing before we let you go here, and that is a personal income wages and salaries up eight tenths of eight percent after just three tenths in January. Does that tell you anything in particular? Is that noise or are companies having to pay up more to attract workers with still a strong labor market.

Yeah, So I think that's reflective of the fact that we did see another strong month of hiring in February, and you saw the work week pick up two So I think overall that that's reflecting that the labor market is still strong. And this is really important for the durability of consumer spending ahead. Even if it looks like consumers we're having to save a little bit less to fund their outlays here in February. But I think that's one of the bright spots in terms of seeing this economy continue to expand and deal with these higher interest rates, is if the labor market continues to chug along that that's going to be helpful for the bulk of consumers.

Yeah, So I think that's reflective of the fact that we did see another strong month of hiring in February, and you saw the work week pick up two So I think overall that that's reflecting that the labor market is still strong. And this is really important for the durability of consumer spending ahead. Even if it looks like consumers we're having to save a little bit less to fund their outlays here in February. But I think that's one of the bright spots in terms of seeing this economy continue to expand and deal with these higher interest rates, is if the labor market continues to chug along that that's going to be helpful for the bulk of consumers.

Sarah, We're in this unusual circumstance where all this data are coming out on a holiday, the stock trading and the bond markets are both closed for Good Friday. What kind of market reaction can we expect to data like this when the market's finally open on Monday.

Sarah, We're in this unusual circumstance where all this data are coming out on a holiday, the stock trading and the bond markets are both closed for Good Friday. What kind of market reaction can we expect to data like this when the market's finally open on Monday.

Yeah, So I think on net this shows that the consumer is still out there spending. It's no shrinking violet, and so I think that does question how much the demand side is going to help bring inflation lower. And so I think that's maybe the most important takeaway from today's report, considering that the inflation numbers came in essentially as expected.

Yeah, So I think on net this shows that the consumer is still out there spending. It's no shrinking violet, and so I think that does question how much the demand side is going to help bring inflation lower. And so I think that's maybe the most important takeaway from today's report, considering that the inflation numbers came in essentially as expected.

And so what kind of do you do you expect then that we could see bond volatility when the markets reopen on Monday.

And so what kind of do you do you expect then that we could see bond volatility when the markets reopen on Monday.

Well, they'll have some time to digest this. I mean, I think it's also going to depend on what we hear from from Powell this afternoon. So we'll see if he makes waves. I think he tries. He tries not to, but I think it'll It'll be a combination of both today's numbers and what the chair has to say.

Well, they'll have some time to digest this. I mean, I think it's also going to depend on what we hear from from Powell this afternoon. So we'll see if he makes waves. I think he tries. He tries not to, but I think it'll It'll be a combination of both today's numbers and what the chair has to say.

Yeah, and again we are going to have those comments from Chairman Powell. Eleven thirty am Wall Street Time here on Bloomberg Radio in that moderated discussion hosted by the San Francisco FED. I asked Tom earlier, if you're expecting any change to the messaging. Do you expect that we'll hear much change from Chairman Powell after this inflation data.

Yeah, and again we are going to have those comments from Chairman Powell. Eleven thirty am Wall Street Time here on Bloomberg Radio in that moderated discussion hosted by the San Francisco FED. I asked Tom earlier, if you're expecting any change to the messaging. Do you expect that we'll hear much change from Chairman Powell after this inflation data.

I don't think so, considering that, again, the inflation data was pretty much pretty much spot online with expectations going in once you mapped both the CPI and PPI data, And it hasn't been that long since since he spoke, since he spoke before, so I think we're going to continue to hear him say that they need to see more confidence that yes, they're looking for inflation to come down, to come down over time, but I think in the mediate term there's still no catalyst I think for moving imminently here.

I don't think so, considering that, again, the inflation data was pretty much pretty much spot online with expectations going in once you mapped both the CPI and PPI data, And it hasn't been that long since since he spoke, since he spoke before, so I think we're going to continue to hear him say that they need to see more confidence that yes, they're looking for inflation to come down, to come down over time, but I think in the mediate term there's still no catalyst I think for moving imminently here.

Appreciate this. Sarah, thanks for coming on with us on a market holiday. Sarah House there a senior economist at Wells Fargo. As we continue to digest this preferred inflation gauge for the Federal Reserve, the PCE deflator coming in, as you mentioned, Mike, with a little bit of a mixed bag, kind of in line on a year over year basis, but some slight cooling month over month.

Appreciate this. Sarah, thanks for coming on with us on a market holiday. Sarah House there a senior economist at Wells Fargo. As we continue to digest this preferred inflation gauge for the Federal Reserve, the PCE deflator coming in, as you mentioned, Mike, with a little bit of a mixed bag, kind of in line on a year over year basis, but some slight cooling month over month.

Yeah, it's not the kind of thing that Sarah said would change the Fed's mind. It would be considered relatively good news for the FED in terms of continued progress on inflation, but as you mentioned, continued slow and bumpy progress on inflation.

Yeah, it's not the kind of thing that Sarah said would change the Fed's mind. It would be considered relatively good news for the FED in terms of continued progress on inflation, but as you mentioned, continued slow and bumpy progress on inflation.

Yeah, it seems like that last mile, as the Fed has been reiterating for quite some time, that last mile, is going to be quite a ways to go in terms of getting inflation back down to that two percent target. Of course, that the FED has been talking about now for months, as we've continued to watch this inflation journey go on to try to get these price pressures back under control, and again with the PCE data coming out this morning, slightly cooler than a lot of economists have been expecting, particularly on a month over month basis, when you factor in the revisions for January that had come in even bigger than expected, three tenths of one percent increase month over month on the headline pclator and a two point eight percent year over year. I'm sorry, two point five percent. For the headline, it was two point eight percent year over year when you strip out the food and energy from the PCEE deflator. You've been listening to live coverage of this economic data. The FEDS preferred inflation gauge coming in with a bit of a mixed bag. Nathan Hager alongside Bloomberg International Economics and Policy correspondent Michael McKee. Stay with us. Your top business headlines and global news stories are coming up right now.

Yeah, it seems like that last mile, as the Fed has been reiterating for quite some time, that last mile, is going to be quite a ways to go in terms of getting inflation back down to that two percent target. Of course, that the FED has been talking about now for months, as we've continued to watch this inflation journey go on to try to get these price pressures back under control, and again with the PCE data coming out this morning, slightly cooler than a lot of economists have been expecting, particularly on a month over month basis, when you factor in the revisions for January that had come in even bigger than expected, three tenths of one percent increase month over month on the headline pclator and a two point eight percent year over year. I'm sorry, two point five percent. For the headline, it was two point eight percent year over year when you strip out the food and energy from the PCEE deflator. You've been listening to live coverage of this economic data. The FEDS preferred inflation gauge coming in with a bit of a mixed bag. Nathan Hager alongside Bloomberg International Economics and Policy correspondent Michael McKee. Stay with us. Your top business headlines and global news stories are coming up right now.