Market Anticipates June Rate Cut Amidst Slowing U.S. Inflation

Investors breathed a sigh of relief as the long-anticipated US inflation report aligned with expectations, easing concerns about rising prices and fostering optimism for a potential rate cut by the Federal Reserve in June.

The Personal Consumer Expenditures (PCE) price index, the Fed’s preferred measure of inflation, increased by 0.3% in January, bringing the annual rate to 2.4%, down from 2.6% in December. This result, in line with predictions, kept the possibility of a mid-year rate cut on the table.

Traders adjusted their expectations, with Fed funds futures now indicating a 74% likelihood of a rate cut in June, up from 57% before the report. The market now anticipates an 82 basis points reduction for the year, slightly higher than the 78 basis points implied before the data release.

While Fed officials have resisted the idea of imminent rate cuts, emphasizing the need for sustained evidence of inflation cooling, market sentiment remains cautiously optimistic about a potential June rate cut.