All Note: Expectations of a September rate cut could increase further

The personal consumption expenditures (PCE) report is expected to be one of the most important economic indicators released this month. Economists surveyed by Dow Jones Newswires and The Wall Street Journal expect consumer prices to slow in May, which could signal a shift in the inflation landscape.

Headline PCE prices: expected to rise 2.6% year-on-year, down from 2.7% in April

Core PCE (excluding food and energy costs): expected to fall to 2.6% from 2.8%, the lowest level since March 2021

If these forecasts prove accurate, it would indicate that inflation is approaching the Fed's 2% target. This trend, combined with last month's Consumer Price Index (CPI) report, could indicate that the rise in inflation observed earlier this year is not the beginning of a sustained upward trend.

Fed Chairman Jerome Powell stressed the need for continued, positive economic data before considering a rate cut. At the last FOMC press conference, Powell said, "We have said that we do not expect it will be appropriate to lower the target range for the federal funds rate until we have more confidence that inflation is moving sustainably toward 2 percent."

A PCE report that is in line with current forecasts could provide the Fed with initial evidence of the "strike through of good economic data" they are seeking. This development could increase the odds of rate cuts starting as early as September.

The CME Group's FedWatch tool currently shows a 66.8% chance of a September rate cut, down slightly from the 67.7% forecast the day before.

The PCE report will be closely watched by investors, economists, and policymakers. Its impact on Fed policy and broader economic trends makes it a key indicator of the current financial landscape.

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