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Big Fed inflation reading on Friday. Here’s what to expect
People buy drinks at a store on a sweltering afternoon in Brooklyn, New York on the first day of summer, June 21, 2024.
Spencer Platt | Getty Images
There could be some very good inflation news on the way from the Commerce Department when it releases a major economic report on Friday.
The personal consumption expenditures price index, a measure of inflation that the Federal Reserve closely tracks, is expected to show little or no monthly increase in May, the first time that would happen since November 2023.
But even more important, when stripping out volatile food and energy prices, the core PCE price index, which draws even closer scrutiny from Fed policymakers, is expected to post its lowest annual reading since March 2021.
If that date sounds familiar, it’s when core PCE first surpassed the Fed’s coveted 2% inflation target during this cycle. Despite a series of aggressive interest rate hikes Since then, the central bank has yet to bring the pace of price increases back into its target range.
Official Dow Jones forecasts for Friday’s numbers are for the headline, or all-item, PCE price reading to be flat for the month, while the core is expected to rise 0.1%. This would compare to the respective increases of 0.3% and 0.2% in April. Both principal and principal are forecast at 2.6% year-on-year.
If the main PCE price predictions come true, it will serve as a milestone of sorts.
“We are in line with [the forecast] that core PCE price data will be weak,” said Beth Ann Bovino, chief economist at U.S. Bank. “That’s good news for the Fed. It’s also good for people’s wallets, although I don’t know if people they still feel it.”
In fact, while the inflation rate has slowed precipitously since its mid-2022 peak, prices have not. Since the March 2021 benchmark, core PCE has risen 14%.
This sharp rise and its pernicious effect are why Fed officials are not yet ready to declare victory, despite the obvious progress made since the rate hikes started in March 2022.
“Returning inflation sustainably to our 2% target is an ongoing process and not a fait accompli,” Fed Governor Lisa Cook said earlier this week.
Cook and his colleagues were cautious about the timing and pace of rate cutsalthough most agree that easing is likely at some point this year, as long as the data stays in line. Futures markets are currently pricing in a good probability that the Fed will enact its first quarter-percentage-point cut in September, with another to follow by the end of the year. Policymakers at their meeting earlier this month penciled in just one cut.
“We expect a slowdown in the real economy — not a fall off a cliff, just a slowdown — which suggests that inflation will also be softer later. This gives us reason to hope that the Fed will probably be able to make its first cut in September “, said Bovino.
“Now we all know it depends on the data and the Fed is still watching,” she added. “Could they wait? Could it be one and done this year? I can’t rule it out. But it looks like the numbers could give the Fed cover 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 of increases of 0.4% and 0.3%, respectively.