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Take a look at US stock futures this morning. We are down across the board fractionally here following the latest read on the Fed's preferred inflation gauge core PCE. Inflation rose at a stubborn pace during February, personal spending came in slightly weaker than expected. Joining us now, we've got Thomas Simons, who is the Jefferies chief US economist. Thomas, great to see you. Thanks for joining us this morning. Just take us into your reaction to this print.

Good morning. So, I I do believe that the, uh, inflation trend overall is not really inflecting higher. I know there's a temptation to believe that based on the fact that tariffs are coming in, obviously the price level is going to rise on a number of different things. Uh, but the implementation is not immediate. Uh, I don't think that we're reflecting towards some sort of demand-driven higher inflation environment. Um, we did miss, uh, you know, a little bit to the upside here with the February PCE data, uh, especially relative to the CPI data that we saw earlier this month, uh, which is a little bit softer. I think the CPI is is more indicative of the trend. You know, we're seeing lower energy prices, uh, you know, falling gasoline prices, uh, and also, you know, the continued disinflation in shelter that we're we're seeing. I think that those will push towards a a more modest inflation environment in the months to come. And I think that's what what is more important to keep focus on.

So where does this leave the Fed, Thomas?

Uh, you know, the Fed is is pretty comfortable and there is sort of no hurry mode right now. Um, I do think that this particular print is not helpful, uh, but if what I expect, uh, for the next couple of months, uh, does continue to play out with a more modest inflation, um, and and again, no details here really suggested that, um, that view is uh, is wrong. Uh, I do think that it leaves them in a position where they can respond to the, you know, potential impact of uncertainty in the labor market later on this year. Uh, I'm still expecting that they're going to cut by mid year and probably have, uh, three rate cuts in you know, June, July, September.

You know, Thomas, with that in mind, it it really kind of puts us in this predicament where we're trying to figure out how much the labor market will also continue to impact the mindset of the consumer where we've already seen that start to show up in some of the confidence prints there. And then at what point is there a large enough trend that the Fed needs to act on? And if July is that point, then at what point later on in the year will the Fed also potentially have to take even more action if there is further deterioration?

So I think once we get through the issues with, uh, in Congress with the budget debate that's going on, um, after we get a few rate cuts from the Fed, and once the policy, uh, focus starts to shift towards more pro-growth, you know, domestic policy offsets to potential tariff impacts, I think the second half of the year, we could see a return to stronger growth. Uh, I don't think that, you know, July 1st is necessarily the day that you should expect that the tone is going to change. Uh, it could be Q4 for instance. Um, but, uh, I don't think that, uh, a cutting cycle that's engaged by the Fed, you know, by mid-year is going to be particularly long or deep. Uh, much like what happened in September, I I think that it's very likely, you know, September last year, I should say. Uh, I think that it's very likely that once they start cutting, they'll start to see better data that maybe suggests that they, uh, don't need to cut nearly as much as uh, as they do in true downturns.