Tracking the Fed’s next steps: All eyes are on this Friday’s PCE print

Investors are preparing for a volatile week as the US prepares to release inflation data on Friday while markets digest new tariff threats from President Donald Trump and fiscal concerns surrounding America’s federal deficit. 

The US Bureau of Economic Analysis is scheduled to release the latest Personal Consumption Expenditures (PCE) data on Friday at around 11 AM ET. 

Analysts expect the headline PCE index to ease slightly to 2.2%, down from 2.3% in March, with the core PCE, which excludes food and energy, likely to witness little to no change. The Fed could use the data to look for signs of inflation moderation and weigh on interest rate cuts in its June meeting.

Fed inflation policy data in focus

According to data from the BEA, the Core PCE Price Index dropped to 2.6% in March from 3.0% in February. The metric has averaged 3.24% since 1960, only peaking at 10.22% in February 1975.

Monthly forecasts point to a 0.1% increase in PCE, while personal income is expected to rise 0.3%, and personal spending is seen slowing to 0.2%, down sharply from 0.7% in March. The Cleveland Fed’s Nowcast model sees little deviation in core figures, although geopolitical tensions caused by Trump tariffs could cause a slight change in the prediction

The outcome of Friday’s PCE report could influence the Federal Reserve’s next monetary policy steps. A softer print may give Fed Chair Jerome Powell more reason to cut borrowing rates next month, while an uptick could give the central bank more reason to wait. 

Fed minutes from the last meeting, due Wednesday, may give investors several insights into policymakers’ deliberations, particularly on tariff risks and inflation persistence. The Fed insists that it requires more evidence before considering easing rates.

On Friday, President Trump proposed raising tariffs on EU goods to 50%, up from the current 20%. The announcement came as the S&P 500 neared 6,000. The index failed to go past 5,962, although volatility is much lower than levels seen back on April 2, “Liberation Day.”

US debt worries amplify yield swings

Last week, the House passed a tax-and-spending bill backed by Trump and projected to expand the federal deficit significantly. The Congressional Budget Office estimates the package will add nearly $4 trillion to the federal debt, currently at $36 trillion.

Yields on 10-year US Treasury dropped to 4.45% on Friday, retreating from a three-month high of 4.64%. The bond market is closed Monday for Memorial Day, but the focus will return to auctions later this week amid signs of weaker demand for longer-dated maturities.

This week’s auctions include $69 billion in two-year notes on Tuesday, $70 billion in five-year notes on Wednesday, and $44 billion in seven-year notes on Thursday. 

Other economic reports due this week include the Case-Shiller home price index for March on Tuesday and weekly jobless claims on Thursday.

Bitcoin recovers after weekend-long stumble

In the crypto market, Bitcoin has recovered from a price volatility that started late Friday and ensued over the weekend, briefly falling to $106,000 before rebounding to levels above $109,000. 

President Trump’s threat to the EU had pushed the largest crypto by market cap down 2% at the close of Friday’s stock market trading session. BTC is now 1.4% up within the 3-day period.

The BTC July-to-June volatility spread, which exceeded 2 vols last week, has now compressed to below 1. This could mean holders are bracing for more policy-driven market turbulence and are unsure if the Trump administration will agree with the European bloc before the July 9 deadline.

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