June’s Personal Consumption Expenditures (PCE) showed that headline inflation rose 0.1% from May, while the year-over-year reading declined from 2.6% to 2.5%. Core PCE, the Fed’s preferred method which strips out volatile food and energy prices, rose 0.2% monthly. The year-over-year reading held steady at 2.6%, remaining at the lowest level in three years.
What’s the bottom line? The Fed has been working hard to tame inflation, hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) eleven times between March 2022 and July 2023. These hikes were designed to slow the economy by making borrowing more expensive and lowering the demand for goods, so pricing pressure and inflation would shrink.
Inflation had been making good progress lower late last year before stalling in the first quarter of this year, causing the Fed to hold rates steady since last September. However, improving readings throughout the second quarter have led to growing expectations that the Fed will cut rates at their meeting on September 18. These latest PCE numbers leave the Fed on track to make this move.