On June 21, 2024, the first day of summer, on a sultry afternoon in Brooklyn, New York, people bought drinks in a store.
Spencer Pratt | Getty Images
There will likely be some pretty good inflation news when the Commerce Department releases its key economic report on Friday.
The personal consumption expenditures price index, an inflation gauge closely watched by the Federal Reserve, is expected to show minimal, if any, monthly gains in May, the first time since November 2023.
But more importantly, after excluding volatile food and energy prices, the core personal consumption expenditures price index, which is more closely watched by Fed policymakers, will post its lowest annual reading since March 2021.
If this date sets off alarm bells, it’s that core PCE exceeded the Fed’s coveted 2% inflation target for the first time this cycle. Despite a series of sharp interest rate hikes since then, the central bank has yet to bring the pace of price increases back to its target range.
Dow Jones’ official forecast for Friday’s data is that the headline PCE price reading will be unchanged from the month, while core prices are expected to rise 0.1%. That compares with growth of 0.3% and 0.2% respectively in April. Both the overall growth rate and the core growth rate are expected to be 2.6%.
If the core PCE price forecasts come true, this will be a milestone of sorts.
“Our forecast is that core PCE pricing data will be soft,” said Beth Ann Bovino, chief economist at Bank of America. “That’s good news for the Fed. It’s good for people’s wallets, too. Although I don’t know if people have felt it yet.”
Indeed, while inflation has fallen sharply from its peak in mid-2022, prices have not. Core PCE is up 14% since the March 2021 benchmark.
Despite clear progress since the start of rate hikes in March 2022, this sharp climb and its deleterious effects are why Fed officials are not yet ready to declare victory.
“Getting inflation back to our 2% goal on a sustained basis 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 pace of rate cuts, though most agree that easing is likely at some point this year as long as the data remains consistent. Currently, the futures market predicts that the Federal Reserve is likely to cut interest rates for the first time by 25 percentage points in September and to cut interest rates again before the end of the year. Policymakers made just one cut at a meeting earlier this month.
“We do expect the real economy to weaken – not fall off a cliff, just weaken – which suggests that inflation will also slow down later. That gives us reason to expect the Fed may cut interest rates for the first time in September,” Bovino said.
“Now we all know it depends on the data, and the Fed is still watching,” she added. “Can they wait? Can they do it once this year? I can’t rule it out. But it does look like the numbers could give the Fed reason to cut interest rates twice this year.”
In addition to the inflation data, the U.S. Commerce Department will release personal income and consumer spending data at 8:30 a.m. Eastern Time, which are expected to increase 0.4% and 0.3% respectively.
About The Author
