The Federal Reserve's preferred measure of U.S. inflation slowed again last month, according to data published Friday, but the pace of decline is starting to stall, suggesting the final leg of the central bank's inflation fight will prove the most difficult.
The June core PCE Price Index rose 4.1% from last year, down from the 4.6% pace recorded in May, accord to the Bureau of Economic Analysis, just inside the consensus Wall Street forecast of 4.2% and the lowest since November of 2021.
The core index was up 0.2% on the month, the BEA reported, a modest uptick from slowing from 0.3% in May and matching the Wall Street consensus forecast.
The headline PCE index rose 0.2% on the month and rose 3.0% on the year, with the latter reading coming in inside analysts' estimates to the lowest since March of 2021. The highest level of 7.1% was printed last year.
Personal incomes rose 0.3% while real personal spending was up 0.5% from May's pace, the BEA noted, a bit lighter than Wall Street forecasts.
Commerce Department data published Thursday showed the closely tracked core PCE price index for the second quarter, which feeds into the Fed's inflation forecasts, slowed notably over the quarter. The core PCE price index was pegged at 3.8%, inside the 4% Street forecast and sharply slower than the 4.9% tally from the three months ending in March.
The Department's CPI inflation reading fell for a 12th consecutive month in June, as well, to a two-year low of 3%, with core consumers prices pegged at 4.8%.
"Today’s PCE, the Fed preferred measure of inflation, came in softer than expected to top off a full week chock full of economic data that all points to a higher probability of a soft landing," said Gina Bolvin, president of Boston-based Bolvin Wealth Management Group. "In the wake of stronger than expected GDP, and a better-than-expected earnings season, this could be the catalyst to send the market to new highs."
"Next week’s employment report is another big data point since there is no Fed meeting next month," she added. "The Fed is data dependent but so is the market."
U.S. stocks were higher in early trading immediately following the data release, with the S&P 500 rising 28 points in the opening hour of trading and the Dow Jones Industrial Average up 136 points. The tech-focused Nasdaq was up 153 points.
Benchmark 2-year Treasury note yields added 4 basis point to change hands at 4.891% following to the release, while 10-year paper was pegged at 3.983%.
The downside moves, which are expected to moderate over the coming months, contrasted the Fed's eleventh rate hike in sixteen months earlier this week, which took the Fed Fund rate to the highest levels in 22 years.
Fed Chair Powell, however, indicated that incoming data, including the all-important PCE prints, would inform our decision as we go into (the September) meeting," Powell told reporters in Washington. "I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted and I would also say it’s possible that we would choose to hold steady at that meeting."
The CME Group's FedWatch tool suggests only a 20% chance of a follow-on hike in September, and pegs the odds of a quarter point move in November at 28.4%.
