Fed Focus: PCE Data Set to Guide Rate Decisions

The US Personal Consumption Expenditures (PCE) price index for May 2025 will be released today at 12:30 pm GMT, a key event for monitoring inflationary trends in the United States. The most recent data, covering April 2025, indicated a moderation in both headline and core PCE inflation. Specifically, headline PCE inflation slowed to 2.1% year-over-year, while core PCE inflation—which excludes the more volatile food and energy components—registered at 2.5%. These figures represent the lowest levels observed in the previous seven months, suggesting a softening in inflationary pressures during that period.

Nonetheless, projections for the May 2025 PCE report point to a possible reversal of this downward trajectory. Consensus forecasts anticipate a 2.3% year-over-year increase in headline inflation and a 2.6% rise in core PCE. This expected uptick is likely attributable to the recent implementation of higher tariffs and continuing supply chain disruptions, both of which have the potential to elevate consumer prices.

From a broader perspective, consumer spending growth has decelerated in 2025. Real PCE grew by just 1.2% on an annualized basis in the first quarter, a notable slowdown from the 4% pace observed in the final quarter of 2024. This deceleration, combined with weakening consumer sentiment and the ongoing effects of tariffs and elevated interest rates, is expected to further constrain future spending, particularly on durable goods. The Federal Reserve’s latest projections indicate that PCE inflation is likely to average around 2.9% for 2025, remaining above the central bank’s 2% target. As such, market participants will closely monitor the upcoming PCE data, personal spending figures, and market responses, as any unexpected developments could influence expectations regarding future Federal Reserve policy decisions and potential adjustments to interest rates.