Quick Takes:

• The PCE report may herald cooler inflation, hinting at a potential Fed rate cut in September.
• Falling gas prices and cheaper goods could signal easier times ahead for wallet-watchers.

Yello Paradisers! Could your wallet feel a little relief soon? May’s Personal Consumption Expenditures (PCE) report is projecting more favorable inflation numbers, potentially setting the stage for a Federal Reserve rate cut come September.

Fresh Data, Fresh Hopes

The latest forecasts for the May Personal Consumption Expenditures (PCE) Price Index suggest inflation might finally be taking a breather, much to the relief of everyone from policymakers to the public. As gas prices take a dive and consumer goods dip into deflation territory, there’s a glimmer of optimism that the Federal Reserve’s 2% inflation target isn’t just a pipe dream.

Source: Bureau of Economic Analysis. Data as of Apr 30, 2024.

From Wall Street to Main Street

Bill Adams, a sage from Comerica Bank, is whispering sweet nothings about PCE possibly hitting its lowest mark since the early days of 2021. Meanwhile, Scott Anderson of BMO Capital Markets paints a picture of a gentle economic descent, a “soft landing” instead of a crash.

The Nitty-Gritty

The devil’s in the details, and for May, the overall PCE Price Index is pegged to rise by 2.6% year-over-year, with a month-on-month stability that hasn’t been seen since April. The core PCE (sans the mood swings of food and energy prices) is also expected to show modest growth, making it a likely candidate for some back-pats at the Fed.

Mixed Signals or Clear Skies?

Despite the promising numbers, not all sectors are sending up fireworks. Shelter costs are stubbornly high, and hospital services have decided they’re not part of this downward trend. Yet, some analysts, like those at Bank of America, see enough silver linings, like falling airfares and cheaper fund management, to keep the hope alive.

Rate Cuts on the Horizon?

With the Fed playing it cool, market prophets are peeking into their crystal balls for rate cuts, potentially as early as September. But as always, the Fed’s grand maestro, Jerome Powell, keeps cards close to his chest, waiting for more than just a few sunny days to break out the picnic.

Source: CME FedWatch Tool. Data as of Jun 25, 2024.

Economic Crossroads

So, as we stand at this economic crossroads, eyes will remain glued to the PCE report slated for release at the end of June. It’s not just numbers on a page, it’s the pulse of the economy, and right now, it’s showing signs of settling down after a feverish run.