After consecutive declines in CPI and PPI, Wall Street expects the "Fed's favorite inflation gauge" to experience a "significant downturn," indicating that the Fed's inflation forecast was too high

After two consecutive price reports boosting market sentiment, Wall Street now expects that the "Fed's favorite inflation gauge" - the core PCE price index, is also set to record the smallest increase since November last year.

The producer price data released by the US Bureau of Labor Statistics on Thursday showed that key categories in the PCE price index to be released later this month may experience a decline. Currently, Wall Street analysts believe that the core PCE price index for May, excluding food and energy prices, may only rise by 0.1%, lower than the Fed's expectations.

Although the latest quarterly "dot plot" released on Wednesday showed that the median forecast of Fed officials is for one rate cut this year, if the core PCE price index only rises slightly, it may push the possibility of two rate cuts this year and starting rate cuts in September.

The media reported that Ian Shepherdson, chief economist at consulting firm Pantheon Macroeconomics, stated in a report:

The core PCE price index for May may only rise by 0.11%, far below the average increase of 0.32% in the first four months of this year... Our forecast indicates that this will be a "significant downside surprise."

He also added:

The prospect of slowing rent increases, declining wage inflation, and compressed retailer profit margins suggest that the core PCE price index will continue to rise at a pace lower than the Fed's forecast this week, laying the foundation for the first rate cut in September and multiple easing measures this year.

Other Wall Street analysts have given similar forecasts. Paul Ashworth, chief North American economist at Capital Economics, stated that the company also expects an increase of 0.11%, while economists at Citigroup gave an expectation of 0.15%.

Media analysis suggests that based on CPI and PPI data, the latest "dot plot" released by the Fed on Wednesday afternoon may already be outdated, as the forecast shows that Fed officials expect the core PCE price index to reach around 2.8% by the end of the year, higher than the forecast of 2.6% in March.

It is worth noting that Fed Chairman Powell also stated at a press conference that most officials may not have updated their data and did not include the CPI data released earlier on the day of the rate decision, Powell believes these forecasts are "conservative."

Currently, the futures market expects that after the latest PPI data is released, the likelihood of a 25 basis point rate cut in September will increase to around 65%, and the likelihood of a rate cut in December will increase to around 80%