US PCE Price Index YoY Actual 2.3% (Forecast 2.3%, Previous 2.1%)

US PCE Price Index YoY Actual 2.3% (Forecast 2.3%, Previous 2.1%)

The United States Bureau of Economic Analysis (BEA) reported that the Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation, increased to 2.3% year-over-year (YoY) in May, matching market expectations [2]. This figure remains above the Federal Reserve's (Fed) target of 2% and reflects the cautious approach taken by the central bank in its recent monetary policy decisions.

The core PCE Price Index, which excludes volatile food and energy prices, also advanced 0.2% month-over-month (MoM) in May, following a similar increase in April. Over the last twelve months, the core PCE inflation rate rose to 2.7% in May from 2.6% in April (Revised) [2]. Meanwhile, headline annual PCE inflation increased to 2.3% from 2.1% in the same period.

The Federal Reserve's preferred measure of inflation will continue to be closely scrutinized as markets await hints about when the central bank will resume interest-rate cuts. The Fed has indicated that it expects the annual headline PCE price index to remain at 2.3% and the core PCE at 2.6% for the 12 months ending May [2].

Last week, the Federal Reserve, led by Chair Jerome Powell, announced its decision to keep the federal funds rate unchanged at 4.25–4.5%. Powell emphasized a cautious, data-driven approach, citing uncertainty over inflation, labor market trends, and the economic impact of President Donald Trump’s tariffs. Despite recent cooling in inflation, the Fed remains wary of persistent price pressures and is in no rush to cut rates, projecting only two potential reductions in 2025 [3].

The PCE data and the Fed's decision to hold rates unchanged have significant implications for the USD. The USD remains close to weekly lows against its major currency rivals amid reduced safe-haven demand, following the Iran-Israel ceasefire announced on Tuesday. Hawkish comments from Fed Chair Powell failed to lift the USD, helping EUR/USD stay close to the highest level so far this year at 1.1718 [2].

Investors and financial professionals should closely monitor the PCE data and the Fed's monetary policy decisions as they can significantly impact market sentiment and currency values. The USD is expected to remain relatively stable in the near term, with the possibility of a rate cut in September if inflation remains subdued.

References: [1] https://www.businessinsider.com/nike-raising-prices-us-expects-1-billion-tariff-hit-2025-6 [2] https://www.fxstreet.com/news/us-core-pce-inflation-set-to-tick-up-slightly-as-markets-mull-timing-of-federal-reserve-rate-cuts-202506270600 [3] https://www.investing.com/analysis/the-fed-holds-the-line-powells-patience-vs-trumps-push-200662718