The price index favored by the Federal Reserve has slowed down, providing support for interest rate cuts

The indicator favored by the Federal Reserve for measuring potential inflation in the United States slowed down in May, supporting a rate cut by the Fed later this year. The core PCE monthly rate, excluding volatile food and energy items, rose 0.1%, which is the smallest increase in six months. Meanwhile, the U.S.'s core PCE price index annual growth rate was 2.6% in May, marking its lowest level since early 2021. After adjusting for inflation, real personal consumption expenditure increased at a monthly rate of 0.3%, while personal income grew at a monthly rate of 0.5%.

This PCE report brings good news to Fed officials seeking to start cutting rates over the next few months. After first-quarter inflation data came out worse than expected, they recently lowered their expectations for cuts this year. The Fed closely monitors service sector inflation excluding housing and energy costs as it tends to be more sticky. Data from Bureau of Economic Analysis shows that this indicator increased by 0.1% compared with last month - its smallest rise since October last year so far despite borrowing costs impacting some economic sectors; household demand remains resilient according to reports driven by airfares and healthcare spending after adjusting for inflation services expenditure grew by 0 .1%. Driven by computer software and automobiles goods spending increased by 0 .6%.