KPMG economist Swonk forecasts hot PCE report, potential Fed rate hike

KPMG chief economist Diane Swonk has forecast that the upcoming Personal Consumption Expenditures (PCE) inflation report will come in hot, raising the possibility that the Federal Reserve could resume rate hikes. The core transmission channel is inflation repricing: a stronger-than-expected PCE print would push out expectations for rate cuts and lift the policy-rate path, widening the rate differential between U.S. Treasuries and major foreign sovereign yields. That dynamic tends to support the U.S. dollar through capital inflows into dollar-denominated assets, while weighing on rate-sensitive instruments such as long-duration Treasuries and rate-sensitive equities. The dollar index and front-end Fed funds futures are the most directly exposed, as shifts in pricing for the next FOMC meeting would translate quickly into currency moves. Traders will be watching the monthly PCE price index release, particularly the core PCE reading, as the key data point that would confirm or refute Swonk's hot-inflation thesis.

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