People buy drinks at a store on a muggy afternoon in Brooklyn, New York, on the first day of summer, June 21, 2024.
Spencer Platt | Getty Images
The Commerce Department could have some pretty good inflation news when it releases a key economic report on Friday.
The personal consumption expenditure price index, a measure of inflation that the Federal Reserve closely monitors, is expected to post little or no monthly increase in May, which would be the first time since November 2023.
More importantly, the core PCE price index, which will face even more scrutiny from Fed policymakers once volatile food and energy prices are factored out, is expected to show its lowest annual reading since March 2021.
If this date sounds familiar, it’s when core PCE exceeded the Fed’s coveted 2% inflation target for the first time this cycle. Despite a series of aggressive interest rate hikes since then, the central bank has so far failed to bring the pace of price increases back into its target range.
Official Dow Jones forecasts for Friday’s numbers are for the overall price of PCE to remain flat for the month, while the core price is expected to rise 0.1%. This compares with corresponding increases of 0.3% and 0.2% in April. Both total and core values are forecast at 2.6% year-on-year.
Should the core PCE price predictions come true, it will serve as a milestone of sorts.
“We are in tune with [the forecast] that core PCE price data will be weak,” said Beth Ann Bovino, chief economist at US Bank. “This is good news for the Fed.” It’s also good for people’s wallets, although I don’t know if people are feeling it yet.
While the inflation rate has fallen sharply since its peak in mid-2022, prices have not. Since this March 2021 benchmark, core PCE is up 14%.
This steep rise and its damaging effects are why Fed officials are not yet ready to declare victory, despite the obvious progress made since rate hikes began in March 2022.
“The sustained return of inflation to our 2% target is an ongoing process, not a fait accompli,” Fed Governor Lisa Cook said earlier this week.
Cook and her colleagues have been cautious about the timing and speed of rate cuts, although most agree that easing is likely sometime this year as long as the data remains consistent. Futures markets are currently pricing in a good probability that the Fed will implement its first interest rate cut of a quarter of a percentage point in September, with another one expected to follow by the end of the year. Policymakers made only one cut when they met earlier this month.
“We expect a slowdown in the real economy – not a downturn, just a slowdown – which suggests that inflation will also be weaker later on. “That gives us reason to believe that the Fed can probably make its first rate cut in September,” Bovino said.
“Now we all know it depends on the data and the Fed is still watching,” she added. “Could you wait? Could it just be one and be ready this year? I can’t rule it out. But it looks like the numbers could give the Fed reason to cut rates twice this year.”
In addition to the inflation numbers, the Commerce Department will release numbers on personal income and consumer spending at 8:30 a.m. ET, with estimates expected to rise 0.4% and 0.3%, respectively.
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2024-06-27 20:28:43
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