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  • Writer's pictureRealFacts Editorial Team

PCE Inflation Gauge Cools


People grocery shopping

In May, the primary Federal Reserve inflation gauge, the PCE price index, remained unchanged, meeting expectations. The 12-month headline inflation rate dropped to 2.6%, while core inflation, excluding food and energy prices, rose by 0.1%, the smallest increase this year. Despite some areas showing price increases, such as healthcare and housing costs, overall inflation was tempered by declines in goods prices and certain service sectors like transportation and recreation. Personal income rose by 0.5%, exceeding forecasts, while personal consumption expenditures increased by 0.2%, slightly below expectations. The mixed data has raised speculation about a potential rate cut by the Federal Reserve in September, with markets reacting positively initially but later falling due to rising Treasury yields. 


Jed Graham reported on the likelihood of a rate cut in September and wrote, “After May's core PCE inflation data, market pricing showed 68% odds that the first Fed rate cut will come by the Sept. 18 policy meeting, up from 64% ahead of the report. Markets now see 66% odds of two quarter-point rate cuts this year, up from 63.5%. Recent economic signals including soft retail sales, weak home sales and a modest uptrend in jobless claims have raised expectations that the Fed will pivot to rate cuts at the September meeting.” He later wrote, “San Francisco Fed President Mary Daly said in a Monday speech that ‘the balance between the demand and supply of workers has largely normalized.’ The Fed has to be on alert because further declines in the demand for labor may show up in higher unemployment, not just fewer job openings.” With rising unemployment and falling inflation, investors believe the Federal Reserve is more likely to pivot towards cutting rates sooner rather than later.

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