Tonight, the Federal Reserve's most favored inflation indicator, the May Core Personal Consumer Expenditure Price Index (PCE), is about to be released.
According to economists' expectations, tonight's PCE data may become a milestone on the path of cooling inflation in the United States: since the core PCE indicator in the United States broke through 2% for the first time in March 2021, this month's data will be the lowest in 38 months.
Another milestone on the road to cooling inflation in the United States?
According to Dow Jones' forecast, the overall PCE of the United States is expected to grow by 0% month on month in May, while the core PCE is expected to rise by 0.1% month on month; In contrast, the month on month growth in April was 0.3% and 0.2%, respectively. The overall PCE and core PCE in the United States are expected to increase by 2.6% year-on-year in May.
If market expectations are reliable, this will be a milestone month for the US PCE series data: the US May PCE will be basically on par with the previous month - this will be the first time since November 2023. But more importantly, after excluding volatile food and energy prices, the core PCE in the United States only increased by 2.6% year-on-year in May, which will be the lowest since March 2021.
For economists who are highly concerned about the US macroeconomy, March 2021 is by no means unfamiliar - this is the first time that the core PCE data in the US has exceeded the 2% inflation target in this economic cycle.
In March 2021, the core PCE index in the United States rose 2.25% year-on-year, breaking the threshold target of 2% for the first time in this economic cycle, which also became the starting point for accelerated inflation in the United States. Since this point in time, inflation in the United States has skyrocketed, and even the annual rate of the core PCE index has reached above 5.5%, which has forced the Federal Reserve to carry out a series of aggressive and significant interest rate hikes. But so far, the Federal Reserve has not brought this indicator back below the 2% threshold.
If tonight's release of the US May core PCE data really meets expectations, it will become a key milestone on the road to cooling US inflation.
US inflation data is expected to cool down
Beth Ann Bovino, Chief Economist of Bank of America, said, "Our prediction is consistent that the core price of personal consumption expenditure (PCE) data will be weak... This is good news for the Federal Reserve. It's also good for people's wallets, although I don't know if people can feel it."
In fact, although the inflation rate in the United States has significantly fallen from its peak in mid-2022, it seems that the price level is not as high for consumers. Since March 2021, core personal consumption expenditure in the United States has increased by 14%, which has greatly damaged the quality of life of American consumers.
Although significant progress has been made in cooling US inflation since the Federal Reserve began raising interest rates in March 2022, Federal Reserve officials are not yet ready to announce victory. Earlier this week, Federal Reserve Director Lisa Cook stated, "The goal of sustainably restoring inflation to 2% is an ongoing process, not a fait accompli."
In recent days, several officials from the Federal Reserve have expressed a cautious attitude towards the timing and speed of interest rate cuts. However, most officials also emphasize that as long as the cooling trend of US inflation data meets expectations, interest rates may be lowered at some point this year.
The market is more optimistic than the Federal Reserve
In this month's Federal Reserve resolution, the Federal Reserve's grid chart shows that interest rates are expected to be cut only once within the year. However, the market still maintains a more optimistic attitude: currently, the futures market trend shows that the Federal Reserve is likely to cut interest rates for the first time by 25 basis points in September and again by the end of this year.
Bovino from Bank of America said: "We do expect the US real economy to weaken - not a sharp drop, just a decline - which indicates that inflation will also weaken later on.". This gives us reason to expect that the Federal Reserve may cut interest rates for the first time in September& amp;quot;
"Now we all know it depends on the data, and the Federal Reserve is still paying attention," she added. "Can they wait? Will they only cut interest rates once this year? I cannot rule out this possibility. But it seems that these numbers may provide an excuse for the Federal Reserve to cut interest rates twice this year."