The PCE and The Fed: Drama We Can't Ignore
By John Persinos
You're probably weary of the endless chatter about the Federal Reserve. I am, for sure. But we have no choice but to tune in, given the central bank's enormous clout.
This week, the economic agenda is relatively sparse, with the spotlight on Friday's release of the core personal consumption expenditures (PCE) inflation index, the Fed's favored inflation gauge.
Early signals from consumer and producer prices suggest a cooling in inflation, hinting that the Fed might finally consider an interest rate cut post-summer. Yes, it's more Fed-related news, but it's the drama we can't afford to ignore.
Projections indicate that core PCE may decelerate to a 0.1% increase for May, marking the slowest monthly rise this year and pulling the annual inflation rate down to 2.6%. Should this forecast materialize, it would represent the most modest year-over-year inflation since March 2021.
Current market sentiment assigns a 64% likelihood to a rate cut in September, followed by another in December. This scenario appears plausible, contingent upon the next three inflation reports leading up to the September Federal Open Market Committee (FOMC) meeting.
Regardless of whether the Fed enacts one or two cuts this year, the broader perspective is that the Fed may be entering a prolonged phase of rate reductions to normalize monetary policy.
Also on the radar this week are political events. The first U.S. presidential debate between Joe Biden and Donald Trump is scheduled for Thursday, and the initial round of the French parliamentary elections will take place on Sunday.
Wall Street is typically inured to political theater, but the stakes in this year's U.S. election are enormous.
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