April PCE Data Signals Easing Inflation, Could Open Door for Fed Rate Cuts
Inflation in the U.S. continued to moderate in April, according to the personal consumption expenditures (PCE) price index, a key inflation gauge closely watched by the Federal Reserve. The data suggests that the central bank may have room to consider lowering interest rates in the coming months.
The headline PCE index rose 2.1% year-over-year, marking the lowest level since February 2021 and a decline from March’s 2.3% reading. On a monthly basis, prices edged up 0.1%, following a flat print in March.
The core PCE index, which excludes the more volatile categories of food and energy, also showed signs of cooling. It rose 2.5% annually, down from 2.6% in February, and 0.1% month-over-month, slightly above March’s flat result.
Separately, the Bureau of Economic Analysis reported that U.S. GDP contracted by 0.2% on an annualized basis in the first quarter, based on its second estimate. The weak growth figure comes amid ongoing volatility stemming from President Trump’s contentious trade policies, which analysts say are weighing on broader economic momentum.
The continued moderation in inflation may give the Federal Open Market Committee (FOMC) greater flexibility to begin easing policy. The committee is next scheduled to meet on June 18, having kept rates steady through its first three meetings in 2025.
Markets currently anticipate that the Fed will begin cutting interest rates from the current range of 4.25% to 4.5% by the end of the year, possibly bringing them below 4%.
“The data wasn’t especially surprising,” analysts at Vital Knowledge wrote in a note. “It leaned dovish, especially in light of April’s softer CPI and PPI numbers, though skepticism remains, as the full economic impact of Trump’s tariffs may not be visible for several months.”
