Macro Briefing: 31 March 2025

US core inflation remained “sticky” in February, based on the core PCE index, which is closely monitored by the Federal Reserve. Core PCE ticked up to a 2.8% year-over-year pace, well above the Fed’s 2.0% inflation target. “It looks like a ‘wait-and-see’ Fed still has more waiting to do,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.”

Consumer spending in the US rebounded from January’s decline, the Bureau of Economic Analysis reports. Personal consumptions expenditures rose 0.4% in February, a bit softer than expected but marking a clear recovery from January’s 0.3% drop.

Highlighting the uncertainty that hangs over the US economy, first-quarter GDP nowcasts from two regional Fed banks report sharply different estimates. On the negative side, the Atlanta Fed’s GDPNow model is projecting a hefty 2.8% decline for Q1 output. An alternative measure “adjusts for imports and exports of gold” tempers to slide to a 0.5% drop. By contrast, the NY Fed’s model nowcasts a 2.9% increase in GDP for Q1.

Manufacturing activity in China rose to a 1-year high in March, according to the government’s PMI survey data. The 50.5 reading for this month is slightly above the neutral 50 mark. The firmer reading suggests “infrastructure spending is ramping up again and that exports have so far remained resilient in the face of U.S. tariffs,” Julian Evans-Pritchard, head of China economics at Capital Economics said in a note.

Gold continued to rise on Monday, setting a new record high as the precious metal advances above $3,100. “For now, gold’s appeal as a safe haven and inflation hedge has further strengthened in light of these geopolitical concerns and tariff uncertainty. We remain constructive on the outlook of gold amid ongoing global trade friction and uncertainty,” said analysts at OCBC.

US consumer inflation expectations continued to rise in March, according to survey data published by the University of Michigan: “Year-ahead inflation expectations jumped up from 4.3% last month to 5.0% this month, the highest reading since November 2022 and marking three consecutive months of unusually large increases of 0.5 percentage points or more.”