Tomorrow's CPI Report Likely to Show ‘Core’ Inflation Resumed Falling In February

Forecasters expect Tuesday's government report on consumer prices in February to show a notable downtick in 'core' inflation, which is the cost of things other than food and gas. While 'core' inflation leaves out some of the most important items in household budgets, it provides a better measure of the trajectory of prices long term because food and gas prices often change in response to events that have nothing to do with broader inflation trends. If the report meets expectations for a decrease, economists say it may leave the Federal Reserve room to begin rolling back its campaign of anti-inflation interest rate hikes in June.

Read more about tomorrow's Consumer Price Index report here.

President Biden's Budget Prioritizes Tax Cuts, Child Care, More

President Joe Biden released his 2025 fiscal year budget proposals Monday, amid Congress' inability to agree on current-year spending. Each year, the president sends a proposed budget to Congress that signals what he would like to see enacted in the coming fiscal year. However, the House and the Senate, which are currently divided along party lines, are the only branch of government with the power to approve spending plans.

Several of Biden's proposals will likely be a centerpiece of his campaign for a second term, some of which were laid out in the State of the Union last week.

Among many proposals, the budget outline called for tax cuts for middle- and low-income taxpayers totaling $765 billion over 10 years. The plan, which covers the fiscal year that begins in October, would restore the pandemic-era expansion of the child tax credit, cutting taxes by an average of $2,600 for as many as 39 million families.

Biden is also targeting child care costs, asking Congress to guarantee affordable care for families with income less than $200,000 a year, with “most families” paying no more than $10 per day under his plan. While the budget proposals would provide some relief to household budgets that have been under pressure to keep up with inflation, there's a good chance they may not come to pass. "Of course, his budget proposals won’t be implemented if he fails to get re-elected or if Congress remains divided," wrote BMO's Senior Economist Sal Guatieri this morning. The divided Congress, with Republicans leading the House and Democrats leading the Senate, has struggled as of late to provide a budget for the fiscal year that is nearly halfway through.

Biden signed a legislative package this weekend that included funding for transportation, veterans, housing and energy programs, avoiding a government shutdown. But the federal budget for the 2024 fiscal year still hasn’t been fully approved, with Congress still needing to pass six spending bills before the next shutdown deadline on March 22.

The remaining spending proposals cover about 70% of federal spending and include funding for the military, health, education and labor programs, which could be more controversial than the spending measure that passed last week.

-Terry Lane

Fewest Companies Cited "Recession" in Earnings Calls Since End of 2021

The number of S&P 500 companies talking about a recession on their earnings call fell for the sixth straight quarter in the latest earnings season.

This quarter will mark the lowest number of S&P 500 companies mentioning the word "recession" on earnings calls since the fourth quarter of 2021, according to FactSet. 

The transcripts of earnings conference calls conducted by S&P 500 companies between December 15 and March 7 showed that 47 companies used the word "recession," below the five-year average of 85 and the ten-year average of 61.

Instead, the term “soft landing” was cited on 37 earnings calls of S&P 500 companies. In the last three years, this is the highest percentage of companies mentioning "soft landing" on quarterly earnings calls. This change may indicate that executives believe the economy may have slowed enough to bring inflation down to the Federal Reserve’s target of 2% without falling into a recession.

-Kathleen Marshall

Consumer Inflation Expectations Creep Up in February

Consumers may be losing confidence that price pressures are easing, according to a new survey.

The New York Federal Reserve’s February Survey of Consumer Expectations showed consumers predict inflation will be 3.0% in the year ahead, the same as the month before. However, their feelings about inflation further down the line worsened. Consumers see inflation at 2.7% in three years, and increasing to 2.9% in five years, both higher than the January results.

Consumers do still expect their wages will stay in front of inflation, with an estimate that household income will grow 3.1%, unchanged from the last survey.  While consumers didn’t expect much relief in food and gas prices, the survey showed expectations for medical care price inflation in the year ahead dropped to 6.8%, its lowest reading since September 2020. Inflation expectations for rent also fell to a more-than-three-year low at ​​6.1%.

The Consumer Price Index will give some insight tomorrow into how inflation behaved in February and comes after recent inflation readings showed prices remained more elevated than economists were expecting.

-Terry Lane

Federal Reserve Officials in ‘Blackout Period’ This Week

Things may seem a bit quieter this week with no Federal Reserve Open Markets Committee members making speeches or statements about the state of the economy.  Federal Reserve officials are now in what’s called the “blackout period” in which they are prohibited from making public statements for nearly two weeks around an upcoming meeting. The blackout period, which formally started on Saturday, will last through March 21, a day after the conclusion of the Federal Open Market Committee Meeting where the Fed will announce its latest decision on interest rates.

Blackout periods begin two Saturdays before a Fed meeting and extend through the Thursday after it. The only exception to the blackout period is when Fed Chair Jerome Powell addresses the media after the committee's two-day meeting to deliver prepared remarks about the decision.

The Fed says these blackout periods are designed to ensure the committee can stay on the same page with their communications which members painstakingly craft at each meeting.

This week, that means investors won’t have time to digest commentary from Fed officials when the Consumer Price Index on February inflation is released tomorrow or information on consumer spending is dropped later in the week. These are two prominent pieces of the economic picture that could influence the Fed's recent ”data-driven” approach.

Federal Reserve officials had a lot to say in the days leading up to the blackout, with several delivering remarks that reiterated the need for patience on interest rate cuts. Officials have said they need to see more proof that inflation is on a sustainable track downward before voting to lower interest rates. 

-Terry Lane