The Federal Reserve’s preferred inflation gauge came out today. While fears of growing inflation dragging the U.S. economy into a recession have been trending as of late, the latest PCE Price Index print reveals a cooldown in price pressures.
First up—the PCE Price Index came in exactly as expected. Month-over-month inflation held steady at 0.1%, while the year-over-year numbers ticked in at 2.1% (slightly below the forecast of 2.2%). That’s a subtle but positive sign that price pressures are cooling, keeping things on track toward the Fed’s 2% target.
The Core PCE Price Index, which strips out volatile food and energy prices, also came in right on target—0.1% MoM and 2.5% YoY, no surprises there. This suggests that underlying inflation is steady, and the Fed might see this as confirmation that the current interest rates are doing their job.
Consumers Are Feeling Less Inflation Too
It’s not just the official numbers pointing to an inflation slowdown—consumer expectations are shifting too.
The University of Michigan’s latest inflation outlook showed both short-term and long-term expectations cooling more than anticipated.
- 1-year inflation expectations: 6.6% (vs. 7.3% forecast)
- 5-year inflation expectations: 4.2% (vs. 4.6% forecast)
These lower expectations mean consumers are not expecting significant price shifts in the near term. Despite all the alarms surrounding inflationary pressures from the U.S. tariff policy, the latest data suggests inflation fears may be going out of fashion.
Despite the positive data, expectations for an interest rate cut at the upcoming June 18 FOMC meeting remain low. Bets that the Fed will decrease rates at the next meeting are low on Polymarket. Only 5% of users believe in a rate slash, while 95% bet that the Fed will maintain the current 4.25% – 4.50% interest rate.
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