The update to the Personal Consumption Expenditure (PCE) Price Index shows the headline reading climbing to 3.9% from 3.6% per annum in April, with the Fed’s preferred gauge for inflation widening to 3.4% from 3.1% during the same period. However, US Personal Spending unexpectedly held flat in May after expanding 0.9% the month prior, and the mixed data prints may encourage the Federal Open Market Committee (FOMC) to retain the current course for monetary policy as the central bank braces for a transitory rise in inflation.
It remains to be seen if the FOMC will gradually adjust the forward guidance over the coming months as Fed officials project two rate hikes for 2023, but it seems as though the central bank will stick to the same script at the next interest rate decision on July 28 as Chairman Jerome Powell pledges to “provide advance notice before announcing any decision to make changes to our purchases.”
