Deutsche Bank is focusing on Thursday’s US personal income and spending report for April, which includes the Federal Reserve’s preferred inflation gauge, core PCE. The bank expects core PCE to rise 0.3% month-on-month, matching March, while the year-on-year rate is seen edging higher. It also points to recent hawkish remarks from Fed Governor Christopher Waller as shaping the near-term policy debate.
On activity data within the same release, Deutsche Bank forecasts a cooling after March’s strength, with personal consumption growth slowing to about 0.3% month-on-month and personal income rising roughly 0.4%. Separately, it argues the Fed has delivered 175bps of rate cuts during this cycle even as inflation remained above target, leaving the fed funds rate below standard policy rule settings. The article was produced using an AI tool and reviewed by an editor.
Core PCE, Inflation, and Fed Policy Outlook
We see this Thursday’s personal income and spending report as the most important event of the week. Our expectation is for core PCE inflation to print around +0.3% month-on-month, showing that inflation remains persistent. This will keep the Federal Reserve in a difficult position.
This view is strengthened by recent data, as the last CPI report for April 2026 registered at 3.5% year-over-year, coming in hotter than anticipated. Combined with a strong labor market, where weekly jobless claims continue to hold below 225,000, the Fed has no urgent reason to lower rates. Governor Waller’s recent hawkish comments only confirm this cautious stance.
Market Reactions and Trading Strategies
Given this outlook, we anticipate increased volatility in interest rate derivatives, especially around the Thursday data release. Traders should consider strategies that benefit from a “higher for longer” interest rate environment. This could involve buying puts on rate-sensitive assets or using options to position for yields remaining elevated.
We saw a similar dynamic in early 2024, when a string of stubborn inflation reports forced markets to delay rate cut expectations, causing a spike in bond yields. History suggests that if the upcoming PCE data is strong, the 2-year Treasury yield could re-test its highs. This aligns with the view that the Fed feels it has already provided enough “insurance” cuts and the bar for further easing is now very high.
