Market Report: PCE May 2025
The May 2025 Personal Consumption Expenditures (PCE) Price Index showed continued moderation in inflation, reinforcing expectations that the Federal Reserve may be nearing a policy pivot.
Headline PCE rose 2.4% year-over-year, in line with expectations and slightly down from April's 2.5%.
Core PCE, the Fed’s preferred inflation gauge (which excludes food and energy), increased 2.6% annually, also easing modestly from the prior month’s 2.7%.
On a monthly basis, core PCE rose just 0.1%, indicating a cooling in underlying price pressures. Services inflation remained sticky, particularly in housing and healthcare, but was offset by declining goods prices and softening discretionary spending.
Market Implications:
Treasury yields ticked slightly lower following the release, with the 10-year note dipping below 4.2% as traders priced in higher odds of a Fed rate cut in Q3.
Equities reacted positively, with the S&P 500 pushing to new highs on expectations of a soft landing and easing monetary policy.
The dollar weakened slightly, while gold and other commodities saw mild gains on the back of dovish sentiment.
Bottom Line:
The May PCE data aligns with the Fed’s goal of gradually restoring price stability without sharply damaging economic growth. If this trend holds, markets may see the first rate cut as soon as the September FOMC meeting. However, the Fed will remain data-dependent, watching employment and services inflation closely in the coming months.
