Fed rate cuts likely after key inflation data

The Federal Reserve's key inflation gauges are expected to exhibit the smallest monthly advances since late last year, potentially setting the stage for future interest rate cuts. Economists predict no change in the May personal consumption expenditures (PCE) price index and a minimal 0.1% increase in the core measure, which excludes food and energy. The report is also anticipated to show annual advances of 2.6% in both the overall and core measures. The projected rise in core inflation would be the smallest since March 2021. Despite the slowdown in inflation, Fed officials have indicated that sustained progress over several months is necessary before any rate cuts are considered.

The labor market remains robust, providing policymakers with greater flexibility regarding the timing of potential interest-rate reductions. The latest inflation data will be released alongside personal spending figures, which will shed light on services expenditures following recent retail sales data that indicated reduced consumer demand for merchandise. In other global economic developments, Japan's Tokyo Consumer Price Index (CPI) for June is expected to rise to 2.1%, while Zimbabwe is anticipated to cut its key interest rate to combat deflation. The Czech Republic may also reduce borrowing costs by 25 or 50 basis points.