Financial Conditions Monitor: Escaping Inflation Upside Risk Paves Way To Stronger Growth Outlook

We systematically track the evolution of financial conditions and their underlying drivers. We intend to share regular updates of these systematic monitors with our donors on a more exclusive basis (so long as it does not compromise our public mission). This monitor is a reflection of how we think macroeconomic and policy dynamics are affecting financial conditions and, by extension, our assessment of the economic growth outlook.

Takeaways:

Financial conditions eased on the back of key inflation innovations: Our inflation preview expressed more concern about the March-May inflation releases but it looks like some key bullets have been dodged, while a couple others may still hit in April or May. All in all, the new information suggests a more accelerated disinflationary path thanks to slower services PCE inflation in both housing (rent) and otherwise. The latter "Core Services Ex Housing" PCE dynamic is likely still underappreciated right now, with PCE revisions to show more month-over-month deceleration across both February and March. We still worry about the potential implications of higher used car prices, but there is now more scope for that upside to be offset.

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