Cleveland Fed Quarterly CPI Inflation Estimate Surges to 5.5 Percent for Q2

Assume the estimate is in the ballpark. Would the Fed ignore it?

The first quarter is over. However, not all of the data is in. Here are the Cleveland Fed nowcasts.

2026 First Quarter Annualized

• CPI: 3.38 percent
• Core CPI: 2.53 percent
• PCE 3.89 percent
• Core PCE 3.63 percent

2026 Second Quarter Annualized

• CPI: 5.51 percent
• Core CPI: 2.58 percent
• PCE 4.56 percent
• Core PCE 2.95 percent

The Fed’s preferred measure of inflation is the PCE.

Q:Looking ahead to Q2, assuming the Cleveland Fed is in the ballpark, would the Fed
ignore 4.56 percent on the PCE with core at 2.95 percent?

A: It depends on what else is happening.

If the labor market is crashing the Fed might look the other way, possibly even find a reason to cut rates.

But if the labor markets are holding up, there would be a lot of pressure by the markets for the Fed to hike.

CPI and PCE Year-Over-Year Percent Change

We have a PCE monthly report tomorrow, but that’s for February, now largely irrelevant.

The only reason for the expected year-over-year PCE drop in February is a very easy comparison to last year. I am not convinced at all. Regardless, March and April rate to be disasters.

For March and April, the Cleveland Fed nowcast is for the year-over-year CPI and PCE to blast higher.

That’s my expectation as well.

Again we have the same questions, with the same answer. Will the Fed ignore these spikes if they happen?

We are going to find out because inflation from the war is baked into the cake.

For the Month-Over-Month nowcast, please see Cleveland Fed Projects Highest Month-Over-Month Inflation Levels Since June 2022

Inflation is directly ahead, and it will make the Fed miserable.

Trump is in a world of hurt. Self-inflicted.

Mish