PCE Day: The Stagflation Math Nobody Wants to Do
Core PCE printed 3.0% YoY while GDP came in at 1.4% — the widest inflation-growth divergence since Q3 2022. The soft landing narrative is under serious pressure.
Catalyst
PCE Price Index (Jan) + GDP Miss
Economic Events
- 08:30 ET — Core PCE Price Index (Jan): 3.0% YoY, 0.4% MoM
- 08:30 ET — GDP Q4 2nd Estimate: 1.4% (missed 2.5% consensus)
TL;DR
- Core PCE printed 3.0% YoY — back above the psychologically critical 3% threshold
- Core PCE MoM at 0.4% (vs 0.3% expected) — annualized run rate well above Fed's 2% target
- GDP came in at 1.4%, badly missing 2.5% consensus — private sector weakness was the real story
- Widest inflation-growth divergence since Q3 2022 — stagflation warning
- Gold hit ATH at $5,027 — safe haven bid accelerating
- BTC at ~$67K, down 30% from ATH — risk-off macro pressure
Market Overview
| Asset | Last | Change | Signal |
|---|---|---|---|
| SPX | ~6,950 | -0.1% | Muted reaction — for now |
| US10Y | 4.2%+ | +11bp this week | Higher for longer |
| Gold | $5,027 | ATH | Safe haven bid |
| DXY | 97.6 | Surged | Dollar strength |
| BTC | ~$67K | -30% from ATH | Risk-off pressure |
Two Numbers That Shouldn't Coexist
Friday delivered two numbers that should not coexist in a "soft landing" scenario:
Inflation accelerating: Core PCE MoM at 0.4% (vs 0.3% expected) puts the annualized run rate well above the Fed's 2% target. Year-over-year at 3.0% breaks back above the psychologically important threshold.
Growth decelerating: GDP at 1.4% badly missed the 2.5% consensus. Government shutdown effects contributed, but private sector weakness was the real story.
This is the widest inflation-growth divergence since Q3 2022. The textbook definition of stagflation risk.
The Fed's Policy Dilemma
The Fed now faces a genuine policy dilemma:
- Cut into hot inflation? Core PCE at 3% makes this politically and economically difficult. The market is already repricing rate cuts further out.
- Hold into weakening growth? GDP at 1.4% with private sector softening means the real economy is already feeling pressure.
Key Levels
| Asset | Support | Resistance | Bias |
|---|---|---|---|
| SPX | 6,900 / 6,850 | 7,000 / 7,050 | Neutral-bearish |
| US10Y | 4.15% | 4.30% | Bearish for equities |
| Gold | $5,000 / $4,950 | $5,100 | Bullish |
| BTC | $64,000 / $60,000 | $70,000 / $76,000 | Bearish |
Scenarios
If: Monday opens with digestion — no follow-through selling
Then: SPX holds 6,900, 10Y stabilizes near 4.20% → range-bound week
If: Stagflation narrative gains traction over weekend
Then: SPX tests 6,850, 10Y pushes toward 4.30% → risk-off acceleration
TTL Take
Core PCE at 3.0% and GDP at 1.4% in the same week. The soft landing narrative just took a serious hit.
The market's muted Friday reaction doesn't mean the data has been priced in — it means the weekend gives portfolio managers time to rethink positioning. Monday's open will tell the real story.
Active Bold Call: BTC → $56,000 within 30 days (from Feb 20). Currently ~$67K. Macro thesis strengthened by PCE/GDP data. Invalidation: weekly close above $76K.
Lose less. Last longer.
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