PCE Validates Our StagDeflation Call

2025-06-02 16:10:00 ET

Summary

• Core PCE printed cool at .1% and declined to 2.5% year over year.
• We continue to forecast that we are entering into StagDeflation as the key endogenous variables that predict inflation are growth in the money supply and, to a lesser degree, oil prices.
• We continue to be bullish on both the stock and bond markets with a 6,600 target on the S&P 500 Index and a 3.75% target on the US 10-year bond.

Core PCE printed cool at .1% and declined to 2.5% year over year. Core PCE continues to be elevated by the flawed shelter component estimate which is purposely delayed by 6 months and further lags market rents as the BLS uses renewing rents . PCE Core-R, adjusted to use market rents, is at the Fed’s arbitrarily low 2% target. We continue to think that tariffs will not have a material impact on inflation, as the decline in oil prices will offset any impact from tariffs. Moreover, tariffs' impact on inflation should be treated as one-time and ignored for the purpose of formulating monetary policy....

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