The Core PCE report for May in the U.S. has generated various reactions among experts, and my personal recommendations based on those opinions are as follows:
The Core PCE (core personal consumption expenditures), the inflation measure preferred by the Federal Reserve, rose to 2.7% annually in May, exceeding expectations of 2.6%. This indicates that inflationary pressures persist, especially in core categories. While overall inflation (PCE) remained more in line with forecasts, the core component is key for the Fed.
Interestingly, this increase in core inflation comes alongside an unexpected slowdown in spending and personal income. This could suggest caution on the part of consumers, perhaps influenced by uncertainty about tariff rates that could impact prices in the future.
Personal recommendations based on expert opinion:
* Caution with rate cut expectations: Given the persistence of core inflation, the Fed finds itself in a delicate position. Although there is pressure to cut rates, this data reduces the likelihood of an aggressive short-term move. I wouldn't expect imminent cuts.
* Monitor the impact of tariffs: Experts point out that the total impact of tariffs has not yet been reflected. Keeping an eye on how this translates to consumer prices in the coming months will be crucial for assessing the inflation trajectory.
* Observe consumer behavior: The unexpected drop in personal spending is a signal to consider. If this trend continues, it could indicate a cooling of demand that, in the long run, could help moderate inflation.
* Implications for the dollar: A higher-than-expected Core PCE is generally bullish for the dollar, as it suggests that the Fed might keep rates higher for longer. However, weakness in spending could somewhat counteract this effect.
In summary, the inflationary landscape remains a challenge for the Fed. The persistence of core PCE, despite the slowdown in spending, suggests that the Fed will maintain a cautious stance, prioritizing the fight against inflation.