At 20:30 Beijing time, the US released May PCE data. The annual rate of PCE price index in May recorded 2.6%, which met expectations and was lower than the previous value of 2.70%. The monthly rate of PCE price index in May was the same as last month, in line with expectations and lower than the previous value of 0.30%.

The US core PCE rate for May recorded the lowest value in six months. The core PCE rate, which excludes food and energy projects with large fluctuations, recorded 0.1%, in line with expectations and lower than the previous value of 0.3%. This is the smallest increase in six months. The annual rate of core PCE price index in May increased by 2.6%, which met expectations and was lower than the expected 2.80%, the lowest level since early 2021. The monthly rate of real personal consumption expenditure adjusted for inflation was 0.3%, and the monthly rate of personal income was 0.5%.

Analysts pointed out that the Fed may be happy about the slowdown in inflation, but many members of the FOMC committee hope to see more progress before cutting interest rates.

After the data was released, traders increased their bets on a Fed rate cut after the release of May PCE data, driving short-term gains in spot gold by nearly $6, approaching the 2340 level. The US dollar index fell 21 points in the short term. At the time of publication, the three major futures indexes rose slightly.

According to CME's 'Fed Watch': the probability of the Fed maintaining interest rates unchanged in July is 89.7%, and the probability of a 25 basis point rate cut is 10.3%. The probability that the Fed will maintain interest rates unchanged until September is 32.3%, the probability of a cumulative 25 basis point rate cut is 61.1%, and the probability of a cumulative 50 basis point rate cut is 6.6%.

San Francisco Fed President Daly said that the cooling of inflation shows that the Fed's monetary policy is working. 'The Fed's (anti-inflation) journey is not over, but the PCE data is good news. Policy needs more time to take effect, but it is taking effect. If inflation declines or the labor market falters, policy can be adjusted.'

This PCE report provided good news for Fed officials who are seeking to start cutting interest rates in the next few months. After the first quarter inflation data was worse than expected, officials recently lowered their expectations for interest rate cuts this year.

The Fed closely monitors non-housing and non-energy service industry inflation. Data from the US Bureau of Economic Analysis shows that this index increased by 0.1% month-on-month in May, the smallest increase since October last year. So far, despite the impact of borrowing costs on some economic sectors, household demand remains resilient. The report shows that adjusted for inflation, service industry spending increased by 0.1% due to the promotion of airfares and medical care. Commodity spending increased by 0.6% due to the promotion of computer software and autos.

Fitch Ratings pointed out that today's PCE data further proves that the slowing inflation trend that stagnated in the first quarter has regained momentum. If the trend seen this month continues in the next two months, the Fed may eventually have the confidence to cut interest rates in September.

Editor/Somer