Interest Rate Cuts Closer as US PCE Inflation Falls to 2.6% pa

The US Bureau of Economic Analysis has today reported that US Personal Consumption Expenditures (PCE) inflation has fallen from 2.7% in April to 2.6% pa in May 2024.

PCE is viewed as better benchmark in the US for inflation rather than CPI as it is a real benchmark as to whether US citizens are spending or not.  This is yet another consecutive PCE fall.

Give this, the $ also weakened meaning that imports will be more expensive, and the Dow Jones fell but the S&P 500 climbed as the S&P 500 is linked to domestic trade rather global trade and if interest rates do eventually fall, domestic firms will prosper as people will have more money to spend with lower mortgage and loan payments.

Comment

If inflation and expenditure is falling in the US, then it does give the Federal Reserve room for manoeuvre on interest rates on 31 July 2024.

We do not expect interest rates to fall in the US or UK until August or even September.