Major Wall Street Firms Update PCE Inflation Forecasts Following PPI Data
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Following recent producer price data, Morgan Stanley has adjusted its September core PCE inflation forecast to 0.34 percent month-over-month, with headline inflation projected at 0.51 percent month-over-month. The latest producer price figures imply a downward adjustment of approximately 4 basis points for August core PCE. Meanwhile, Pantheon anticipates that core PCE inflation will hover between 3 percent and 3.25 percent over the upcoming six months, while revising its core PCE deflator prediction to 0.36 percent compared to 0.33 percent previously. Oxford Economics' updated nowcast estimates headline PCE at 0.47 percent and core at 0.29 percent month-over-month. On an annual basis, Oxford Economics expects headline inflation to rise to 3.6 percent from 3.4 percent, and core inflation to increase to 3.0 percent from 2.9 percent.
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Following the Producer Price Index (PPI) release, major investment banks including Morgan Stanley and Oxford Economics projected the September core PCE inflation rate to be between 0.29% and 0.36% month-over-month. This PPI data suggested a downward revision of about 4 bps for the August core PCE, indicating that inflationary pressures are being managed moderately. Investors are closely watching the impact of these inflation metrics on expectations for monetary easing ahead of the upcoming Federal Reserve rate decision.
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- Growth Stocks — As core PCE inflation remains managed within expected ranges, expectations for Fed rate cuts are maintained, easing valuation pressures.
- Bonds — As inflationary pressures are expected to peak and ease, Treasury yields stabilize, supporting an increase in bond prices.
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- Banks — The expected benchmark rate cut trend leads to a narrowed loan-deposit spread, exerting downward pressure on the net interest margin (NIM) of banks and financial sectors.
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This mixed inflation data directly affects the pace of the Fed's future rate cuts and could increase volatility in the bond and growth stock markets. The confirmation of moderate price stability, with September core PCE expected to remain around 3.0% annualized, acts as a positive factor for the stock market.
The bullish scenario is that the slowdown in inflation is confirmed, leading the Fed to execute aggressive rate cuts, which would push up growth stocks and bond prices. Conversely, the bearish scenario is that headline inflation rebounds to 3.6%, raising concerns about prolonged tightening and putting downward pressure on the stock market overall, requiring careful monitoring of upcoming employment and consumption indicators.
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