#USCorePCEMay The May Core PCE report from the United States is crucial, as it is the Federal Reserve's preferred inflation indicator. Recent data shows that the core inflation (Core PCE) in May was 2.7% year-on-year, slightly above expectations of 2.6%. This follows April's 2.6% (revised up from 2.5%). On a monthly basis, Core PCE rose by 0.2%, also a bit more than expected.

Analysis and Recommendations:

This reading, while modest, indicates that inflation remains "sticky" and is above the Fed's 2% target. The good news is that overall inflation (headline PCE) was in line with expectations, but the underlying component is what worries the Fed the most.

My personal opinion is that this data, combined with the weakness in personal income and spending also observed in the report (personal income fell -0.4% and spending -0.1%), presents a mixed picture. On one hand, persistent core inflation suggests that the Fed may maintain its cautious stance regarding rate cuts. On the other hand, lower spending and the drop in income could indicate an economic slowdown that, eventually, may contribute to cooling inflation.

The Fed is at a crossroads. While the market still expects rate cuts this year, this type of "higher than expected" data in the Core PCE could delay the start of such cuts.