The Federal Reserve could cut interest rates “as soon as September,” according to economists after official figures revealed a decline in a closely-watched measure of US inflation last month.
The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, decreased to 2.6% in May from 2.7% in April, as analysts had predicted.
This marks the lowest level since February 2021. The core PCE price index, which excludes volatile food and energy prices, also fell from 2.8% to 2.6%, reaching its lowest point since March 2021.
Paul Ashworth, chief North America economist at Capital Economics, noted that the Fed’s median projection of core inflation at 2.8% for the fourth quarter “now looks too pessimistic.”
He stated, “Like Biden, consumers appear to be faltering at just the wrong time, finally capitulating under the pressure of higher rates. The return to the earlier disinflationary trend and newfound weakness in real activity are both consistent with the Fed cutting interest rates as soon as this September.”
Money markets now anticipate the Fed will start cutting interest rates by November, with increased bets on a September rate cut following the release of the PCE data.
