Fed’s Preferred Inflation Gauge Tallies in at 2.5%

The core personal consumption expenditures (PCE) index, which is the Fed’s preferred inflation gauge, rose by 0.1% month-over-month (MoM) and 2.5% year-over-year (YoY) in April, both of which were in line with analyst estimates. The core PCE index excludes food and energy prices from the PCE index given their price volatility.

The PCE index rose by 0.1% MoM, which was in line with estimates, and 2.1% year-over-year, slightly below the 2.2% estimate and the slowest rate since February 2021. Both the core PCE and PCE index track the prices that consumers spend on goods and services.

Slowing PCE Adds Fuel to Rate Cuts

With goods and services rising at a slower pace and closer to the Fed’s objective goal of 2% inflation, the central bank now has even more reason to reduce the interest rate, which could provide a boost to the stock market as companies will be able to borrow at lower rates.

Traders assign a 97.9% chance that the Fed will hold rates steady during the June 18th meeting, according to the CME FedWatch tool. However, the July 30 meeting could prove to be different, as there is a 23.9% chance that it cuts by 25 basis points (bps) and a 0.5% chance for a 50 bps reduction.

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