Is higher for longer still valid?
Despite the outlook for a near-term severe recession looking less likely, the market remains convinced that significant disinflation and interest rate cuts are ahead (see chart). While some decline in core personal consumption expenditures price index (PCE) inflation should be expected thanks to slowing housing inflation, broad-based disinflation is likely to remain elusive. Core PCE inflation ex-housing has averaged 4% over the past 12 months as well as YTD. Hence, housing disinflation alone, which itself is likely to be gradual, is unlikely to get core PCE inflation low enough to satisfy the Fed.