U.S. Inflation and PCE Outlook

U.S. Inflation and PCE Outlook

Consumer Price Dynamics Remain Under Scrutiny

The dynamics of consumer prices in the United States remain under close observation: between expectations of monetary easing and risks of persistent inflation, markets are moving in a precarious balance.

A Resilient Yet Pressured Economy

The U.S. economy is currently navigating a delicate transitional phase. On the one hand, GDP growth continues to demonstrate resilience thanks to a still-strong labor market and robust domestic demand. On the other hand, inflationary pressures—though gradually easing—have not yet returned to the levels desired by the Federal Reserve. In particular, the PCE (Personal Consumption Expenditures) index—the Fed’s preferred gauge for price trends—continues to raise concern due to its slow decline toward the 2% target.

Core inflation, which excludes food and energy, remains above the central bank's comfort zone, indicating persistent cost pressures in services and wages. This backdrop fuels ongoing uncertainty around monetary policy decisions and investor sentiment in financial markets.

May 2025 Data:

• Headline PCE (Personal Consumption Expenditures Price Index): +0.1% month-over-month, +2.3% year-over-year (up from +2.1% in April)

• Core PCE (excluding food and energy): +0.1% m/m, +2.6% y/y (up from +2.5% in April)

The May data confirms a trend of slowing inflation in both services and goods, though with a slight rebound in the headline figure.

U.S. Core PCE Rises in June 2025

With today’s data, Core PCE increases: Core > 2.7% YoY, MoM > +0.2%. At this point, the following scenarios may emerge:

Tighter Monetary Policy

• The Fed is likely to postpone rate cuts (the July cut is already off the table; current odds for a September cut are around ~70%).

• Possible signals of quantitative tightening (QT) or an end to balance sheet expansion.

Macroeconomic Effects

• U.S. growth slowing down (higher interest rates weaken investment and consumption).

• Stagflation-like recession risk, with growth near zero and inflation moderate but rising.

Equity Market

• Volatile weeks ahead: the market anticipates a still-restrictive Fed → equities at risk, especially cyclical sectors.

• S&P 500 and Nasdaq could adjust to lower valuations, with tech and growth stocks particularly penalized.

Currencies & Bonds

• Stronger U.S. Dollar (USD appreciates vs foreign currencies).

• Treasury yields rising (potential shock to the bond market).