TD Securities economists judge that April Consumer Price Index (CPI) strength was driven by shelter and energy, but see core Personal Consumption Expenditures (PCE) Price Index running softer than CPI. They argue tariff pass-through is fading and supercore PCE should ease. With labor-market conditions improving, they expect the Federal Reserve (Fed) to shift from a dovish bias toward a more neutral policy posture while remaining on hold.

From dovish bias to neutral stance

"While there are signs suggesting tariff pass-through is fizzling out, services ex-housing inflation remained firm in the CPI which could give pause to a number of Fed officials."

"That said, we still see the equivalent supercore PCE number coming in much weaker ahead of PPI data tomorrow."

"For now, the path of least resistance for the Fed, amid improving labor-market conditions, is to shift from a dovish bias to a more neutral policy posture."

"Fed pricing moved modestly higher in the wake of the report, but this print alone is"

"unlikely to change the Fed's stance on remaining on hold as the labor market stabilizes and the full extent of the impact of energy prices is still unclear."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)