[Interpretation] The annual rate of the U.S. core PCE price index in May hit a 21-month low: Inflationary pressure eased, where will the Fed's policy go?

The core personal consumption expenditures (PCE) price index, a key indicator of the U.S. economy, showed significant changes in May. According to the latest data, the core PCE price index recorded an annual rate of 2.6% in May, which was the smallest increase since March 2021; while the monthly rate was only 0.1%, the smallest increase since November 2023.

### Core PCE Price Index: The Fed’s Barometer of Inflation

The core PCE price index is one of the most closely watched inflation indicators by the Federal Reserve because it excludes short-term fluctuations in food and energy prices and better reflects the long-term inflation trend. The decline in this data indicates that inflationary pressure in the United States may be easing, which is an important signal for global financial markets.

### The Fed’s Policy Balance

The Federal Reserve pays close attention to inflation data when formulating monetary policy. If inflation continues to be below target, the Federal Reserve may tend to maintain or lower interest rates to stimulate economic growth. On the other hand, if inflation is too high, raising interest rates is a common means of controlling inflation. The current data suggests that the Federal Reserve may take a more cautious approach in the coming months and observe the economic recovery rather than rushing to tighten monetary policy.

### Market reaction and investment strategy

For investors, lower inflation expectations are generally seen as good news because it reduces the risk of a rapid rate hike by the central bank, which is good for the stock and bond markets. However, too low inflation may also trigger concerns about slowing economic growth. Therefore, while being optimistic, investors also need to remain vigilant, pay attention to the performance of subsequent economic data, and adjust their investment portfolios in a timely manner.

### Conclusion

The decline in the US core PCE price index in May is a bright spot in the recent global economic situation, which indicates some positive changes in the US and even the global economy. However, the interpretation of economic data often requires comprehensive consideration of multiple factors, and the future trend is still uncertain. Investors should remain rational and pay close attention to subsequent economic developments.

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