US inflation in March has not yet been impacted by tariffs. Nomura downgrades PCE and raises GDP forecasts.

Nomura released comments and forecasts on the US economy. Nomura pointed out that core Consumer Price Index (CPI) inflation in March was lower than expected, showing no signs of inflation pressure caused by tariffs. Taking into account the components of the CPI, the inflation forecast for core Personal Consumption Expenditures (PCE) in March was revised down from a month-on-month increase of 0.137% to 0.022%. It is expected that the core PCE inflation components derived from Producer Price Index (PPI) data will be somewhat weak, including airfare prices, portfolio management, and investment service prices. Given the increased uncertainty of the impact of high tariffs, the CPI report on April 10 is unlikely to affect the monetary policy outlook. Nomura revised its tracking of first-quarter GDP from an annualized increase of 0.9% to 1.0%. Since the CPI data was lower than expected, the forecast for the March PCE chained index was revised down, raising the estimate for actual personal consumption in the first quarter. In addition, intensive spending exceeded expectations, raising the estimate for government consumption. Nomura's main points are as follows: Consumer Prices Core Consumer Price Index (CPI) inflation in March was lower than expected, showing no signs of inflation pressure caused by tariffs. Taking into account the components of the CPI, the inflation forecast for core Personal Consumption Expenditures (PCE) in March was revised down from a month-on-month increase of 0.137% to 0.022%. It is expected that the core PCE inflation components derived from Producer Price Index (PPI) data will be somewhat weak, including airfare prices, portfolio management, and investment service prices. Given the increased uncertainty of the impact of high tariffs, today's (April 10) CPI report is unlikely to affect the monetary policy outlook. Unemployment Claims Data Initial jobless claims rose slightly to 223,000, remaining within recent ranges. There is currently no indication that layoffs related to DOGE have had a widespread impact, as the number of federal workers filing for unemployment claims has dropped to 508. Continued jobless claims reversed the previous week's upward trend, falling to 1.85 million. Weak business confidence caused by tariffs has not yet led to pressure, and companies have not preemptively laid off workers. This should prompt the Fed to exercise patience in easing when the time comes. First Quarter GDP Tracking The tracking of first-quarter GDP was revised from an annualized increase of 0.9% to 1.0%. Since the CPI data was lower than expected, the forecast for the March PCE chained index was revised down, raising the estimate for actual personal consumption in the first quarter. In addition, intensive spending exceeded expectations, raising the estimate for government consumption. Tax Reduction Measures House Republicans approved the Senate version of a budget resolution, which increases the likelihood of new tax reduction policies being enacted, not just extending expiring tax provisions of the Tax Cuts and Jobs Act. The budget resolution uses "current policy assumptions," ignoring the $3.8 trillion deficit increase from extending expiring tax provisions and planning to cut an additional $1.5 trillion in taxes over the next ten years. If the resolution is passed, the net increase in the deficit could be as high as $5.8 trillion. The minimum amount of spending cuts set by the budget resolution is only $40 billion. However, to gain the support of fiscal hawks, House Speaker Johnson has pledged to include at least $1.5 trillion in spending cuts in a reconciliation bill. If the bill is passed, it may largely offset the positive effects of the new tax reduction policies. The scale of spending cuts to be considered may become a focus of controversy during the passage of the reconciliation bill. Fed Officials' Remarks Dallas Fed President Logan continued the Fed's hawkish tone, emphasizing the risk of "ongoing inflation spikes" leading to higher inflation expectations. Similar to Powell's remarks last week, Logan stated that the Fed needs to observe actual inflation transmission to determine whether there is sustained price pressure (rather than relying on survey-based or market-based inflation expectations). Logan hinted at the possibility of the Fed's dual mandate goals conflicting, saying that "failure on any one target will come at a high cost." She strongly advocates prioritizing inflation control, believing that long-term high inflation expectations will lead to a weak labor market. Kansas City Fed President Schmidt maintained a hawkish stance, emphasizing the upward risk of inflation caused by ongoing tariff actions. He acknowledged high risks to economic growth but believed that a strong labor market and healthy consumer balance sheets could support consumer spending. Regarding monetary policy, Schmidt mentioned that he is "closely monitoring" inflation outlook in balancing the Fed's dual mandate. He expressed concern about rising inflation expectations and took a "cautious" approach to whether the impact of tariffs on inflation is only temporary. Boston Fed President Collins delivered a speech. Like other members of the Federal Open Market Committee (FOMC), she acknowledged increased uncertainty and the importance of stabilizing long-term inflation expectations. However, she seemed to still maintain an expectation of a rate cut "later this year," taking a slightly dovish stance. Outlook for University of Michigan Consumer Confidence Index It is expected that the preliminary reading of the University of Michigan Consumer Confidence Survey will decline from 57.0 in March to 54.0 in April (market consensus is 53.8), the lowest level since July 2022. Aggressive tariff statements and stock price declines may suppress consumer confidence. During the reference period for the survey, the San Francisco Daily News sentiment index also dropped to its lowest level since October 2023. In March, both short-term and long-term inflation expectations rose slightly, possibly due to inflation concerns caused by tariffs. Fed Chairman Powell played down the recent increase in this indicator, but some FOMC members expressed concerns about recent data.