Back on track?

A bump in the road? That may be how the Federal Reserve now views inflation’s plateau earlier in the year. More recent reports suggest it is easing onto a glide path toward its 2% goal.

The Fed’s preferred inflation gauge, core Personal Consumption Expenditure deflator (core PCE for short), came in as expected in April, rising 0.2% month-over-month and 2.8% over the last year. This follows monthly gains of 0.5% in January and 0.3% in both February and March. If this trend continues, the Fed would likely look more favorably toward federal funds cuts. But progress is not guaranteed; recall that this annualized measure showed inflation of over 5.5% in 2022, but that has fallen to 2.8% and is clearly moving in the right direction. We hope slow and steady will win the race!

Consumer confidence as measured by the Conference Board showed that they feel better about both current and future conditions. Views of the labor market also improved, but expectations of 1-year ahead inflation ticked higher, from 5.3% to 5.4%. Weekly jobless claims were little changed, at 219,000, just above their average since year-end 2021. 

With solid labor market and inflation continuing to trend toward the Fed’s targets, market eyes will now turn to its meeting on June 12 to ascertain its take on the economy and potential for rate cuts.