Fed's Favorite Underlying Inflation Gauge Is Seen Cooling

The Federal Reserve's primary inflation gauge, the personal consumption expenditures price index excluding food and energy, is anticipated to show a modest increase of 0.2% in April, indicating some easing in inflation pressures. This would be the smallest rise this year, suggesting a gradual progress in the Fed's efforts to curb inflation. Despite this, Fed officials are inclined to maintain higher interest rates for a longer duration to ensure inflation consistently approaches their 2% target. The upcoming data release will also include insights into personal spending and income, providing further context on economic conditions.

Fed Chair Jerome Powell and his colleagues have been cautious about reducing the benchmark interest rate. They have emphasized the need for more evidence that inflation is on a sustained path to their 2% target before making any decisions on rate cuts. The Federal Reserve's first-line inflation gauge is expected to show some modest relief from price pressures, supporting the central bankers' prudent approach to the timing of interest rate cuts. They have kept the benchmark interest rate at a two-decade high since July and have coalesced around a desire to hold interest rates higher for longer.