Inflation Measure Preferred By Fed Shows Cooling Prices: CBS

An inflation measure closely tracked by the Federal Reserve slowed to its smallest annual increase in three years, prompting some Wall Street economists to forecast an increased likelihood that the central bank could cut rates in September, Aimee Picchi reported for CBS News.

Excluding volatile food and energy prices, so-called core inflation rose 0.1% from April to May, the smallest increase since the spring of 2020.

The personal consumption expenditures index (PCE), rose 2.6% in May on a year-over-year basis, the US Commerce Department said.

That represents its lowest increase since March 2021, according to EY senior economist Lydia Boussour in a Friday report, adding that it signals "cooler consumer spending momentum and easing inflation."

Excluding volatile food and energy prices, so-called core inflation rose 0.1% from April to May, the smallest increase since the spring of 2020, when the pandemic erupted and shut down the economy, the Associated Press (AP) also reported.

The Federal Reserve earlier this month scaled back its forecast to just one rate cut in 2024 from its prior expectation for three reductions due to stubborn inflation, which remains higher than the central bank's 2% annual target.

The latest PCE numbers could portend an increasing likelihood that the Fed could cut rates at its September meeting, Wall Street economists said.

"The market is now giving the Fed the green light to consider a rate cut at their September 18th meeting. Currently, the odds for a rate cut at that meeting are approximately 75%," wrote John Kerschner, head of US securitized products at Janus Henderson Investors, in a recent email.