In May, the latest reading of the Federal Reserve’s preferred inflation gauge revealed a slowdown in inflation as prices rose at the slowest pace since March 2021. The core Personal Consumption Expenditures (PCE) index, excluding food and energy costs, only increased by 0.1% in May, matching Wall Street’s expectations and showing a deceleration from the 0.3% increase seen in April. Despite this minimal rise, the core PCE was up 2.6% over the prior year, marking the slowest annual gain in more than three years.
Following other positive May inflation reports, such as the Consumer Price Index (CPI) showing core prices climbing 0.2% from the previous month, Federal Reserve officials remain cautious about the inflation trend. After unexpectedly high inflation earlier in the year, the Fed emphasized in their recent policy statement that they will not consider cutting rates until they have “greater confidence” in the path of inflation. Fed chair Jerome Powell mentioned during a press conference on June 12 that there has been some progress toward the inflation objective, but more data is required to ensure inflation is steadily moving towards the target of 2 percent.
Despite the recent signs of easing inflation in May, Federal Reserve officials are adopting a watchful stance regarding future rate adjustments. With inflation playing a crucial role in the Fed’s decision-making process, Powell emphasized the need for more positive data to build confidence in the sustainable movement of inflation toward the desired level. The overall sentiment remains cautious as policymakers continue to monitor economic indicators closely to ensure a stable and balanced inflation environment in the future.
