The primary Federal Reserve inflation gauge rose at the slowest pace this year in May, while consumer spending slowed, raising hopes for a September rate cut. S&P 500 futures remained higher on the Fed-friendly data after rallying overnight on an election-shifting presidential debate.
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What Stock Market Investors Need To Know About The PCE Report
Primary Fed Inflation Rate
The personal consumption expenditures, or PCE, price index was unchanged in May, in line with estimates. The 12-month headline inflation rate fell to 2.6%, as expected.
Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. The core PCE price index rose 0.1% in May, matching forecasts and the smallest increase so far this year.
The 12-month core inflation rate cooled to 2.6%, matching forecasts.
The data looked even better when left unrounded. The core PCE price index rose just 0.8% on the month, the least since November 2020. The 12-month inflation rate fell to 2.57%.
This story is being updated with more data and analysis. Please check back.
Personal Income, Spending
The PCE price index is released with the Commerce Department’s monthly personal income and outlays report. Personal income rose 0.5%, above 0.4% forecasts. Personal consumption expenditures rose 0.2% in May, trailing 0.3% estimates.
Federal Reserve Rate-Cut Outlook
Ahead of May’s core PCE inflation data, market pricing showed 64% odds that the first Fed rate cut will come by the Sept. 18 policy meeting. Markets saw 63.5% odds of two quarter-point rate cuts this year.
Recent economic signals including soft retail sales, weak home sales and a modest uptrend in jobless claims have raised expectations that the Fed will pivot to rate cuts at the September meeting.
San Francisco Fed President Mary Daly said in a Monday speech that “the balance between the demand and supply of workers has largely normalized.” The Fed has to be on alert because further declines in the demand for labor may show up in higher unemployment, not just fewer job openings.
S&P 500
S&P 500 futures rose 0.3% in Friday stock market action. On Thursday, the S&P 500 edged up 0.1% to finish within 0.1% of an all-time closing high.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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