The Federal Reserve’s preferred inflation measure showed signs of cooling as consumer spending increased only moderately, providing relief to central bankers seeking to tame demand and manage price increases. The Personal Consumption Expenditures index rose by 2.6 percent in May from a year earlier, in line with economist forecasts and slightly lower than the previous 2.7 percent. A core price measure, excluding volatile food and fuel prices, also grew at 2.6 percent annually, down from 2.8 percent in April, with overall inflation remaining mild and stable on a monthly basis.
As policymakers at the Fed anticipate potential rate cuts later in the year, they have postponed their initial plans due to persistent inflation earlier in the year. The possibility of a rate cut in September has gained traction among investors, contingent on economic data regarding prices and the labor market. While inflation remains above the 2 percent target, it has slowed considerably from past peaks, signaling a gradual but positive trend in controlling price growth. Fed officials are closely monitoring these developments to determine the appropriate timing for any future rate adjustments.
Amid concerns about a potential economic slowdown, some Fed officials are cautious about keeping interest rates too high for an extended period, which could hinder overall growth and impact labor conditions. Despite ongoing strength in hiring and robust wage growth, indicators suggest possible weakening in labor market conditions, such as a decrease in job openings and a slight rise in unemployment rates. As the economy continues to adjust, Federal Reserve officials are evaluating the delicate balance between managing inflation expectations and supporting sustainable economic growth.