JULY 1, 2024 – PCE RISES 2.6 PERCENT IN MAY, LOWEST IN 3 YEARS
The personal consumption index (PCE) was up 0.1 percent for the month of May, or 2.6 percent year over year. The increase is the lowest experienced since March 2021. The PCE is the Fed’s preferred inflation measure, as the PCE is a broader measure than the CPI, and accounts for changes in consumer behavior.
Mary Daly, the San Francisco Fed President, commented last week that the Fed’s monetary policy is working by cooling inflation. The US economy has borne the Fed’s aggressive monetary tightening without slipping into a recession. The unemployment rate, at 4 percent, remains historically low, and the GDP is on track for a 2.2 percent increase in the second quarter.
Even though the data is encouraging, the likelihood of a September rate cut is not a certainty. Pundits believe inflation needs to slow more, and the labor market needs to weaken, to allow the Fed to act decisively.