Jeffrey Roach (Jeffrey Roach), chief economist at LPL Financial, said that the cooling of inflation data means that the Federal Reserve may cut interest rates in June.

As the Federal Reserve's preferred inflation indicator, the monthly growth rate of the US personal consumption expenditure (PCE) index fell to 0.3% in February from 0.5% in January. This cooling means there is less pressure to keep interest rates at the current high level.

Roach wrote in a report last Friday: “By the time the Federal Reserve meets in June, these data should be enough for them to start the process of normalizing interest rates. But in our current situation, the market needs to be as patient as the Federal Reserve.”

On an annualized basis, PCE rose 2.5% in February, slightly higher than the 2.4% increase in January. However, excluding highly volatile categories such as food and energy, core PCE rose 2.8% year on year in February, and the increase continued to slow.

Roach expects price increases for core services to continue to slow for the rest of the year. He wrote that this is a positive sign because of course it means the Federal Reserve doesn't have much reason to raise interest rates, as some “marginal groups” suggest.

Service spending has also returned to pre-pandemic trends, the data shows. This is another green signal: it indicates disposable income is slowing, which means consumer spending growth will slow in the coming months, Roach said. This is worth noting given that consumers are a major driver of the US economy.

“Overall, this is good news for the market,” Roach said.

edit/ruby