Cooling US inflation boosts market expectations for early rate cut

Inflation in the US, indicated by the change in Personal Consumption Expenditures (PCE) price index, noted a modest decline in May at 2.6% year-on-year, the US Bureau of Economic Analysis (BEA) reported.

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Oil prices found some support after the US PCE price index showed a modest decline in May, after rising to 2.7% in April. PCE or consumer spending, measures the value of goods and services purchased by or on behalf of households.

This drop has boosted hopes that the US Federal Reserve (Fed) could start cutting interest rates sooner-than-expected, which in turn could support demand growth in the world’s largest oil-consuming nation.

This inflation report was “key” for the broader financial markets to understand the US Fed’s likely approach to interest rate cuts, VANDA Insights’ founder and analyst Vandana Hari said.

Higher interest rates in the US can dampen demand for the dollar-denominated commodities like oil, as it strengthens the greenback against other currencies.

By Aparupa Mazumder 

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