If the financial markets took advantage of the long Easter weekend to take a break before starting a new quarter, the publication of macroeconomic data did not slow down. This is particularly the case in the United States where several important data were expected. They confirm the image that has prevailed for many months now of an economy in (slow) disinflation and which, against all expectations, remains resilient given the restrictive rate context.
On this last point, the activity indicators published yesterday show a marked recovery in the manufacturing sector. The ISM index thus returned to positive territory (expansion zone) for the first time since October 2022 driven by the increase in new orders and production. If American consumption therefore still keeps the economy at arm's length, this comes at the cost of a drop in the savings rate. While real disposable incomes have been eaten away by inflation, one may wonder where these resources come from. which seem endless Perhaps stock market capital gains?
As for PCE inflation, the Fed's preferred indicator came out slightly below expectations on a monthly basis (+0.3% compared to +0.4% in January for overall inflation and +0.3 % against +0.5% for core inflation) and therefore confirms the ongoing disinflation movement with a further fall in core inflation at an annual rate. Note, also among the good news, the sharp slowdown in “super core” inflation over the month (i.e. without rents) which increased by +0.2% compared to +0.7% in January. These data also tend to confirm the seasonal effect which could have had an upward impact on the figures for the previous month. Speaking immediately, Jerome Powell, Chairman of the Fed, was delighted to note that the price trend “aligns with expectations” and is consistent with what the American institution wants to see. If the usual precautions are naturally still required, Jerome Powell nevertheless stressed that he is now considering “both the risks to employment and inflation”. This reminder of the duality of the Fed's mandate can, in our opinion, be perceived as dovish because it openly puts inflation and unemployment on an equal footing. Inflation is therefore no longer the main problem of FOMC members! The employment figures which will be published at the end of the week will therefore be worth following closely, especially as the latest figures seem to be starting to show a slight decline. Furthermore, and even if it is careful not to do so, the Fed must face political choices: on the one hand with the imminence of the presidential election where a posture that is too accommodating or not enough could be perceived as favoring one or other of the candidates and, on the other hand, the explosion of the American deficit, financed mainly in the short term, is hardly compatible with such high interest rate levels. We therefore continue to believe that the Fed will act for the first time in June to lower its key rates (currently expected at 60% by the market).