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28/06/24
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U.S. PCE Price Index Rose on Yearly Basis
On Friday, the United States’ personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred measure of inflation, came in unchanged m/m in May and rose by 2.6 percent on yearly basis, according to the Commerce Department’s data.
The inflation reduction, as anticipated in May on an annualized basis, potentially provides more impetus for the Federal Reserve to start trimming interest rates this year.
The headline PCE price index cooled to 2.6 percent from 2.7 percent y/y as well as 0.0 percent m/m relative to April’s rise of 0.3 percent. This represents the first time of not increasing in six months. The core PCE index, excluding volatile items such as food and fuel, declined to 0.1 percent on monthly basis, as well as by 2.6 percent on yearly basis.
Generally, the readings came in as expected by economists. A few weeks ago, the Federal Reserve decided to leave rates unchanged at 5.25 percent to 5.5 percent, noting that they expect to trim rates once this year, relative to the previous estimate of three. Several Fed policymakers wanted to see further evidence that inflation was reducing to the 2 percent target in a sustainable manner.
According to San Francisco Fed President May Daly, it seems inflationary pressures are gradually reducing, but the Fed is “not done yet.” Daly expressed herself during an interview on CNBC, noting that recent data showing that the inflation rate did not increase between April and May is “good news that policy is working.”
“We are getting evidence that (policy) is tight enough… It’s really challenging to look anywhere and not see monetary policy working. We have growth slowing, spending slowing, the labor market slowing, inflation coming down,” said Daly. She expects inflation to remain above the Federal Reserve’s 2 percent target through the end of next year.
Markets will look forward to comments from Richmond Fed President Thomas Barkin and Fed official Michelle Bowman during the day. LSEG FedWatch data shows that the probability of the Fed trimming rates in September rose from 61 percent prior to the release of the PCE index data to 68 percent after the release.
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