Wolfe Research analysts assessed what would happen if rent inflation doesn't cool in a brief note to clients Tuesday.
The firm explained that seasonal factors may weigh on CPI Rent and Owners' Equivalent Rent (OER) in the summer, roughly when many forecasters expect a more material step down in inflation.
"But what if that's wrong?" questioned analysts at Wolfe Research. "Is there a realistic path for core PCE inflation to come back to 0.2% MoM (or 2.5% annualized), a condition we view as necessary for Fed cuts without a further slowdown in rents."
"We're tracking 0.25% MoM for April core PCE (or 3% annualized), which is about 5bp in excess of the critical level," the firm adds, noting that Fed Vice Chair Jefferson also hinted Fed economists are tracking April core PCE between 0.24% to 0.26% during his comments at a conference yesterday.
Looking ahead, analysts believe financial services alone should weigh on core PCE by 4 basis points, along with a seasonal reversal in both recreation goods and other services.