May Inflation Data Aligns with Predictions, Pointing to Possible Rate Cuts This Year
The U.S. Federal Reserve's preferred inflation measure, the core Personal Consumption Expenditures (PCE) Price Index, met expectations in May, rising 2.6% year-over-year, down from April's 2.8%.
Monthly, core PCE inflation increased by 0.1%. The overall PCE remained flat in May after a 0.3% rise in April, marking the first time in six months that consumer prices did not increase. These readings matched economists’ consensus, reinforcing expectations that interest rates could decline faster than previously anticipated by policymakers.
Treasury yields fell following the release of this data. Markets have largely been pricing in an initial 25-basis point rate cut in September, with a second cut possible in 2024, according to CME data. Despite market anticipation, Fed officials have projected only one cut this year.
They have consistently stated that inflation data will guide their next steps, and some officials have even suggested the possibility of another rate increase. The forecasts of a more aggressive easing cycle are primarily based on the assumption that inflation will drop significantly as the economy feels the strain of high borrowing costs.
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Experts like Kevin Flanagan from WisdomTree believe that while the overall trend shows disinflation, the path to the Fed’s 2% target will be challenging. Scott DiMaggio from AllianceBernstein notes that year-over-year inflation readings may decline more slowly due to stubborn components, particularly in the services sector.
He predicts that inflation is unlikely to accelerate as it did earlier this year, but reaching the Fed’s 2% goal might not happen until 2025. The next significant data point, June’s PCE inflation, is due on July 26, just before the Fed’s rate-setting meeting on July 30-31.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
