Today's PCE report had mixed implications for the Federal Reserve. The spending numbers were strong, suggesting that the consumer remains strong but core and headline inflation fell once again.

The Fed has repeatedly pointed to core PCE and it tracked down to 2.9% y/y from 3.0% previously as the covid recovery continues.

PCE core
PCE core y/y

Eyes are on the shorter-term numbers as 6-month annualized inflation fell to 1.9% and 3-month annualized to 1.5%. Those show that the only thing keeping the Fed from achieving its target is time. In addition, the core PCE data will lap some high numbers in the first quarter of this year, which should be a big help in getting it back to target.

The next question for the Fed is how much (and how soon) they want to cut while most indication still show a decent growth clip in the US. There's a good argument for recalibrating rates from 5.50% back into the 4% range even with a solid economy. That would still leave the Fed plenty of room to cut if trouble hit without stoking further inflation.

Something that would make the decision easier would be a soft jobs report next week or stronger signs of falling prices.

At the moment, the market is lightly selling the US dollar as yields back to pre-PCE levels. S&P 500 futures are flat.

GBPUSD 10 mins
GBPUSD 10 mins