May Inflation Cools, Raising Hopes for Fed Rate Cuts

U.S. inflation eased in May, matching economists’ expectations and potentially bolstering the case for the Federal Reserve to implement interest rate cuts in 2024. The headline personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, remained flat month-over-month, a significant slowdown from April’s 0.3% increase. The annual rate also cooled to 2.6% from 2.7%.

Core PCE, which excludes volatile food and energy prices, also eased to 0.1% month-on-month and 2.6% year-on-year. This deceleration in both headline and core inflation aligns with the Fed’s target of 2% annual inflation and could pave the way for the central bank to ease monetary policy in the coming months.

The news of cooling inflation comes amid signs of a slowing U.S. economy, further supporting the argument for potential interest rate cuts. Investors will closely monitor future economic data and the Fed’s communications for further clues on the timing and magnitude of any potential rate adjustments.