Evelyn Reynolds

A customer shops at a Safeway store on June 11, 2024 in San Francisco, California.
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An important economic measure for the Federal Reserve showed Friday that inflation during May slowed to its lowest annual rate in more than three years.
The core personal consumption expenditures price index increased just a seasonally adjusted 0.1% for the month and was up 2.6% from a year ago, the latter number down 0.2 percentage point from the April level, according to a Commerce Department report.

Both numbers were in line with the Dow Jones estimates. May marked the lowest annual rate since March 2021, which was the first time in this economic cycle that inflation topped the Federal Reserve’s 2% target.

Including food and energy, headline inflation was flat on the month and also up 2.6% on an annual basis. Those readings also were in line with expectations.
Outside of the inflation numbers, the Bureau of Economic Analysis report showed that personal income rose 0.5% on the month, stronger than the 0.4% estimate. Consumer spending, however, increased 0.2%, weaker than the 0.3% forecast.
Prices were held in check during the month by a 0.4% decline for goods and a 2.1% slide in energy, which offset a 0.2% increase in services and a 0.1% gain for food.
However, housing prices continued to rise, up 0.4% on the month for the fourth straight time. Shelter-related costs have proven stickier than Fed officials have anticipated and have helped keep the central bank from reducing interest rates as expected this year.

Stock market futures were modestly positive following the report while Treasury yields were negative on the session.
Investors have been trying to handicap the Fed’s intentions on rates this year and have had to scale back expectations. Whereas traders earlier in 2024 had been expecting at least six rate cuts this year they are now pricing in just two, starting in September.
“The lack of surprise in today’s PCE number is a relief and will be welcomed by the Fed,” said Seema Shah, chief global strategist at Principal Asset Management. “However, the policy path is not yet certain. A further deceleration in inflation, ideally coupled with additional evidence of labor market softening, will be necessary to pave the way for a first rate cut in September.”
The Fed targets 2% inflation and began raising interest rates in March 2022 after a year of dismissing rising prices as transitory effects from the Covid pandemic that likely would fade. The central bank last raised rates in July 2023 after taking its benchmark overnight borrowing level to a range of 5.25%-5.5%, the highest in some 23 years.
Recent economic data has painted a picture of an economy that has withstood the Fed’s aggressive monetary tightening. Gross domestic product rose at a 1.4% annualized rate in the first quarter and is on pace to increase 2.7% in the second quarter, according to the Atlanta Fed.
There have been some slight cracks in the labor market lately, with continuing jobless claims hitting their highest level since November 2021. However, the unemployment rate is still 4%, low by historical means though also rising at a slow pace.
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The personal consumption expenditures price index, an inflation measure the Federal Reserve watches closely, is expected to show little, if any, monthly increase for May.
When stripping out volatile food and energy prices, the core PCE price index is set to indicate its lowest annual reading since March 2021.
The Commerce Department releases the inflation readings, along with reports on personal income and spending, Friday at 8:30 a.m. ET.

People purchase beverages in a store on a sweltering afternoon in Brooklyn, New York, on the first day of summer on June 21, 2024.
Spencer Platt | Getty Images

There could be some pretty good inflation news on the way from the Commerce Department when it releases a key economic report Friday.
The personal consumption expenditures price index, an inflation measure the Federal Reserve watches closely, is expected to show little, if any, monthly increase for May, the first time that would be the case since November 2023.

But even more importantly, when stripping out volatile food and energy prices, the core PCE price index, which draws even closer scrutiny from Fed policymakers, is set to indicate its lowest annual reading since March 2021.
If that date rings a bell, it’s when core PCE first passed the Fed’s coveted 2% inflation target during this cycle. Despite a series of aggressive interest rate increases since then, the central bank has yet to wrest the pace of price increases back into its target range.
The official Dow Jones forecasts for Friday’s numbers are for the headline, or all-item, PCE price reading to come in flat on the month, while core is projected to rise 0.1%. That would compare to respective increases of 0.3% and 0.2% in April. Both headline and core are forecast at 2.6% on a year-over-year basis.
Should the core PCE price forecasts transpire, it will serve as a milestone of sorts.
“We are in line with [the forecast] that the PCE core pricing data will come in soft,” said Beth Ann Bovino, chief economist at U.S. Bank. “That’s good news for the Fed. It’s also good for people’s pocketbooks, although I don’t know if people feel it just yet.”

Indeed, while the rate of inflation has receded precipitously from its mid-2022 peak, prices have not. Since that March 2021 benchmark, core PCE is up 14%.
That steep climb and its pernicious effect is why Fed officials are not ready to declare victory yet, despite the obvious progress made since the rate hikes began in March 2022.
“Returning inflation sustainably to our 2% target is an ongoing process and not a fait accompli,” Fed Governor Lisa Cook said earlier this week.
Cook and her colleagues have been circumspect about the timing and pace of rate cuts, though most agree that easing is likely at some point this year as long as the data stays in line. Futures markets are currently pricing in a good likelihood that the Fed will enact its first quarter-percentage-point cut in September, with another to follow by the end of the year. Policymakers at their meeting earlier this month penciled in just one cut.
“We do expect softening in the real economy — not falling off a cliff, just softening — that suggests that inflation will be softer as well later on. That gives us reason to expect the Fed will be able to likely have their first cut in September,” Bovino said.
“Now we all know it depends on the data and the Fed is still watching,” she added. “Could they wait? Could it just be a one and done this year? I can’t rule it out. But it does look like the numbers might give the Fed cover to cut rates two times this year.”
In addition to the inflation numbers, the Commerce Department at 8:30 a.m. ET will release figures on personal income and consumer spending, with estimates at a rise of 0.4% and 0.3%, respectively.

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About 90% of Chinese enterprises in the U.S. plan to maintain or boost their investment levels in the country, according to the survey.
The results come despite 60% reporting a deteriorating business environment amid concerns about policy and U.S.-China trade relations.

GP: American flag and Chinese flag
Matt Anderson Photography | Moment | Getty Images

A recent survey of Chinese enterprises in the U.S. has found that a majority remain bullish on the market long term despite growing concerns about U.S.-China relations and the broader business environment. 
The annual survey conducted by the China General Chamber of Commerce in the U.S. found that nearly 60% of companies aim to maintain a stable level of investment and that about 30% plan to boost it. 

“A notable degree of long-term optimism persisted, with the majority expressing positive future revenue expectations,” CGCC said, adding that the survey reflected “a commendable sense of optimism, determination, and resilience.” 
The survey was conducted in April and May of this year, polling nearly 100 Chinese companies across various industries about performance and outlook.
The report said Chinese firms remain committed to the U.S. market despite growing negative sentiment about the overall business environment amid rising trade tensions between the world’s two largest economies. 
Over 60% of survey respondents saw a deteriorating business environment in the U.S. Meanwhile, the rate of concern regarding a “stalemate in Sino-US bilateral relations political and cultural relations” surged to 93% from 81% a year prior.
Over the past year, the Biden administration has ramped up curbs on Chinese businesses, scrutinizing certain China-dominated industries, placing new sanctions on various Chinese firms and goods and trying to outright block Chinese ownership of certain companies and platforms.

In the survey, more than 65% of respondents identified a “complexity and vagueness” of U.S. regulatory and sanction policies toward Chinese companies as the main challenge in branding and marketing in the U.S.
“Pervasive anti-China sentiment in American public opinion” was ranked as the second largest branding and marketing challenge, according to 59% of respondents.
“These [results] highlight the intricate policy environment and the hostile public sentiment influenced by ongoing US-China trade tensions,” the report said.
The survey said a challenging market environment has broadly impacted Chinese companies’ profitability levels, with firms facing a “significant performance downturn” last year similar to that of 2020 during the coronavirus pandemic. 
More companies reported falling revenue, particularly those with significant declines of more than 20%. Companies in that category rose from 13% in 2022 to 21% in 2023. 
Hu Wei, CGCC chairman and president and CEO of Bank of China U.S.A., called on companies from both China and the U.S. to strengthen coordination to reduce trade frictions and policy barriers. 
“From a longer-term perspective, trade and investments have always been the cornerstone of the U.S.-China relations,” he said, adding that despite various uncertainties, China remains the U.S.’ third-largest trading partner and largest importer. More

Michelle Bowman, governor of the US Federal Reserve, speaks during the Exchequer Club meeting in Washington, DC, US, on Wednesday, Feb. 21, 2024. 
Kent Nishimura | Bloomberg | Getty Images

Federal Reserve Governor Michelle Bowman said Tuesday the time is not right yet to start lowering interest rates, adding she would be open to raising if inflation doesn’t pull back.
“Should the incoming data indicate that inflation is moving sustainably toward our 2 percent goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive,” Bowman said in prepared remarks for a speech in London. “However, we are still not yet at the point where it is appropriate to lower the policy rate.”

Those comments reflect a prevailing sentiment at the central bank, in which most policymakers have said in recent weeks that, while they still expect inflation to get back to the Fed’s 2% target, they need more evidence.
Recent readings have shown moderating inflation, with the Fed’s preferred indicator running just under 3%. However, the rate-setting Federal Open Market Committee noted after its last meeting that there has been only “modest further progress.”
Bowman noted that there are “a number of upside risks” prevailing that could accelerate her outlook, which is among the most hawkish of all policymakers.
“I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse,” she said. “Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy.”
The Commerce Department on Friday will release its reading on the May personal consumption expenditures price index, the Fed’s preferred inflation gauge. Economists surveyed by Dow Jones expect a 12-month inflation rate of 2.6% on both the all-items and core, which excludes food and energy prices.

While that would represent a nudge lower from April, Bowman said she still expects the Fed to hold its key overnight borrowing rate in a range between 5.25%-5.50% “for some time.”
Moreover, she indicated she is not being swayed by rate reductions from the Fed’s global counterparts such as the European Central Bank, which recently lowered its key rates by a quarter percentage point. Bowman said “it is possible over the coming months that the path of monetary policy in the U.S. will diverge from that of other advanced economies.”
Bowman’s remarks come with other officials saying Monday that they’re hesitant to cut.
San Francisco Fed President Mary Daly rejected the idea of doing a preemptive cut to hedge against deterioration in the labor market and a slowing economy.
“I do think that preemptive cutting is something that you do when you see risks,” Daly told CNBC’s Deirdre Bosa during a public event in San Francisco. “We’re going to be resolute until we finish the job. That’s why not taking preemptive action when it’s not necessary is so important.”
Also, Chicago Fed President Austan Goolsbee told CNBC’s Steve Liesman earlier on Monday that if he sees “more months” of good inflation data, then he would question whether policy needs to be as restrictive as it has been, paving the way for cuts.

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