Core PCE cools to 3.3% in June as disinflation trend holds

U.S. inflation continued its gradual descent in June as core PCE eased to 3.3%, reinforcing expectations for eventual Fed rate cuts.

Core inflation cooled for a second straight month in June, with the Federal Reserve's preferred gauge slipping to 3.3% from 3.4% in May, matching economist forecasts and keeping the disinflation narrative intact.

"The data confirms the downward trend in underlying price pressures, which should give the Fed confidence to begin easing in the coming months," said James Okafor, macro analyst at Edgen. "The question is whether the pace of improvement is fast enough for a September move."

Headline personal consumption expenditures inflation held at 3.7% year over year, unchanged from May and in line with the 3.7% consensus estimate tracked by FactSet. On a monthly basis, the headline index was expected to fall 0.1%, which would mark the first negative monthly reading since April 2020. Core prices rose 0.2% month over month, down from 0.3% in the prior period.

The Bureau of Economic Analysis also released its preliminary estimate for second-quarter gross domestic product, which came in at 2.1% annualized, matching the first-quarter pace and the consensus forecast. The combination of moderating inflation and steady growth supports a soft-landing scenario, where the Fed can bring down price pressures without tipping the economy into recession.

The data keeps the Fed on track for a potential rate cut in September, though the unchanged headline reading at 3.7% — well above the central bank's 2% target — limits the scope for aggressive easing. Overnight index swaps currently price in roughly 75 basis points of cuts through year-end, implying two to three quarter-point reductions.

The last time core PCE was on a sustained downward trajectory from these levels was in late 2023, when it fell from 3.7% in September to 2.9% by December, paving the way for the Fed's pivot in its December dot plot. A similar pattern over the second half of 2026 would bring core inflation close to 2.5% by year-end, strengthening the case for a steady easing cycle.

Treasury yields edged lower following the release, with the two-year note falling 4 basis points to 4.32% as traders added to bets on a September cut. The S&P 500 opened modestly higher, while the dollar index slipped 0.2% against a basket of major currencies.

This article is for informational purposes only and does not constitute investment advice.