The February PCE report was out this morning. Both PCE and core PCE index went up 0.3% in February, much lower than the 0.6% increase in January. On an annual basis, PCE went up 4.6% while the core CPE went up 5%. PCE is the inflation gauge the Fed primarily focuses on and with the Fed funds rate at 5%, the real interest rate (based on core PCE) is finally positive since 2021. However, the PCE services index continued to rise and reached 5.7% YoY in February. My understanding is that we need the service inflation to go down to really tame the inflation.
I guess the good news is the PCE did go down in February. But the bad news is it’s probably not going down enough to confidently predict that the Fed will pause rate hikes in the next FOMC meeting in late April. Today marks the last day of Q1 2023 and the stock market had a great quarter with SPY 0.00 up 7% and QQQ 0.00 up 20% for the quarter. I don’t believe most people predicted this at the end of 2022. But I will still bet on new lows of both SPY 0.00 and QQQ 0.00 in 2023 since the lows we experienced in 2022. The recession is set to happen due to the banking crisis and more problems from the ZIRP era are likely to surface in the next few quarters. Â