The key inflation indicator used by the Federal Reserve to set policy was reported to have risen 3.4% in May. This reading is the fastest increase since the early 1990s as reported by the Department of Commerce.
Although this jump is the fastest jump since April 1992 but it is in line with the Dow Jones target. Hence the market did not give much reaction following this news. The futures stock market showed gains of around 150 points for the Dow Jones Stock Exchange, while bond yields did not change much.
The increase in the price index of core personal consumption expenditure reflects the rate of economic growth and price pressures. In addition it also carries an indication of how far the U.S. has grown since the economic downturn.
This data makes the market pay more attention to inflation but the opposite is true for the Fed. The Fed is currently more likely to watch the development of economic and national conditions until everything returns to normal.
The core index rose 0.5% for the month but was below the 0.6% estimate. The PCE index which includes food and energy rose 3.9% for the year and 0.4% for the month.
PCE (personal consumption expenditure) is personal consumption expenditure which is one of the inflation data. This data is data that is said to be The Fed’s primary choice inflation data. The Fed will use the core PCE as a tool to determine whether to raise or lower interest rates.
On the other hand, consumer spending was reported unchanged from an expected rise of 0.4%, while personal income declined 2%less than the expected decline of 2.7%.
The US dollar index, which measures the strength of the greenback against major currencies, fell 0.23% to 91.582.
