Hilsenrath sees a case for easing in Q2 GDP

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Hilsenrath sees scope for easier policy in the Q2 GDP report.

“Key price indexes are uniformly running below the Federal Reserve’s 2% objective. The personal consumption expenditures price index was up 1.6% from a year ago, thanks in part to falling gasoline prices. This is the price index that the Fed watches most closely, more so than the consumer price index produced by the Labor Department, which is running a touch higher. Excluding food and energy, the PCE price index was up 1.8% from a year ago. The Fed watches this ex-food-and-energy index to get a read on underlying inflation trends. For the quarter at an annual rate, the PCE price index ran at 0.7% and excluding food and energy it ran at 1.8%. An alternate measure, the “market-based” price index, is also running below 2%. This is ammunition for Fed officials who want to act right away to spur growth. Not only is growth subpar, and the job market stuck in the mud, inflation is also running below the Fed’s long-run goals.”

Note that the fed cares most about headline inflation, and uses core PCE only as a guide. For this reason, i think it is worth keeping an eye on the trimmed mean PCE deflator (published by the Dallas Fed). That data is monthly, and it shows the annualized pace of PCE inflation falling to 1.4% in May. That is a long way below 2%.