US inflation stalls, boosting hopes of Fed rate cuts

US inflation remained flat in May, with a slight rise in service costs countered by the biggest drop in goods prices in six months. This data suggests the Federal Reserve may be inching closer to lowering interest rates later this year.

The Commerce Department report also showed a modest increase in consumer spending last month. This fuels optimism that the Fed might achieve a “soft landing” for the economy, where inflation eases without triggering a recession or significant unemployment rise. Financial markets reacted positively, with traders increasing bets on a Fed rate cut by September.

The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, held steady after rising 0.3% in April (unchanged revision). Goods prices saw a significant 0.4% decline – the steepest since November. This drop was driven by substantial price decreases in recreational goods, vehicles, furnishings, and durable household equipment.

Attribution: Reuters