Economists: Hot PPI shows Fed's work is not done
The latest PPI data indicates that inflation pressures remain elevated, signaling the Federal Reserve's tightening efforts may not yet be complete. With core PCE projected to rise to 0.32% later this month, growing inflation could lead to more aggressive rate decisions ahead. This development underscores the Fed's continued challenge in balancing economic growth while managing inflation, making market participants reconsider the trajectory of interest rates in coming meetings.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). This outlook reflects cautious sentiment as inflation remains a significant variable influencing the Fed's decisions.
How firms align
JPMorgan's view supports this framing, aligning closely with rising inflation expectations due to tighter monetary conditions, targeting 1.10 for EUR/USD by March 2026. Conversely, Bofa is more cautious, suggesting a lower target of 1.04 in light of Fed policy constraints.
What the data shows
Forecast revisions indicate an upward adjustment of expectations, with economists noting the potential for sustained inflation pressures. See our related research at /research/core-inflation-impacts for more insights on current trends.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Hot PPI data indicates persistent inflation; Fed likely to remain active.
- 02FX traders should watch for heightened volatility around PCE updates.
- 03Core PCE could affect rate decisions ahead of November FOMC meetings.
- 04Expect cautious positioning from traders given mixed firm targets.
Market implications
Focus on the upcoming PCE release as a key indicator of inflation trends. Maintaining a level of 1.075 for EUR/USD will be critical in context of shifting Fed expectations and trader sentiment.
Risks to this view
Should inflation readings unexpectedly decline or show signs of easing, this could prompt a reversal in Fed policy sentiment, invalidating the current bullish outlook on EUR/USD.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.75
Sources & References
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