TD Securities expects the Federal Reserve to adopt a neutral policy bias as labor markets improve and core PCE inflation eases below CPI levels.
TD Securities economists forecast the Federal Reserve will move from a dovish bias to a neutral policy stance, citing softer core Personal Consumption Expenditures (PCE) inflation compared to Consumer Price Index (CPI) data. Shelter and energy drove April CPI strength, but fading tariff pass-through and easing supercore PCE suggest disinflationary trends ahead.
Labor market conditions have improved, reducing immediate pressure for rate cuts. While services ex-housing inflation remained firm in CPI, TD expects supercore PCE to weaken, aligning with upcoming Producer Price Index (PPI) data. The Fed’s pricing adjusted modestly higher post-report but is unlikely to alter the hold stance yet.
The shift to neutral reflects stabilizing labor markets and uncertainty over energy price impacts. Fed officials may pause further dovish signals until clearer trends emerge in inflation and economic data.