US May Core PCE up 2.7%, slightly above expectations... Fed likely to be cautious about early rate cuts

The Personal Consumption Expenditures (PCE) price index, considered a key indicator for monetary policy decisions by the U.S. central bank (Fed), remained at a level consistent with market expectations in May. Despite assessments that price increases are slowing, there is an opinion that the Fed still needs to approach an early policy rate cut with caution.

The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce announced on the 27th that the PCE price index for May 2025 rose by 2.3% year-on-year. The core PCE price index, which excludes volatile items such as energy and food, climbed by 2.7% year-on-year. This figure is 0.1 percentage points higher than expected.

Core PCE is the indicator the Fed prioritizes most when making base rate decisions, and it still exceeds the inflation target of 2%. This release drew particular attention from the markets as it was the first inflation report following the Fed's decision to hold rates steady at the Federal Open Market Committee (FOMC) in June. Market participants are especially focused on indications that the pace of price increases has gradually slowed over the recent months.

The Fed is expected to provide more granular views on its rate policy at the upcoming FOMC meeting at the end of next month. While there are still expectations in some quarters for a rate cut within the year, the predominant view is that with core inflation remaining above target, the Fed will maintain a wait-and-see stance rather than moving to an early cut.

Reporter Sohyun Lee y2eonlee@hankyung.com