- Goldman Sachs projects the core PCE index rose 0.2% in May, up from 0.1% in April.
- Year-over-year core PCE is expected to climb to 2.6%, despite cooler CPI data.
- Markets await Thursday’s producer price report for further clarity on inflation trends.
Sticky Inflation Persists
Goldman Sachs economists predict the Federal Reserve’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) index, likely increased 0.2% in May—a slight uptick from April’s 0.1% rise. This would push the annual rate to 2.6%, reinforcing concerns that inflation remains stubbornly above the Fed’s 2% target. The forecast comes despite recent consumer price data showing milder-than-expected increases, suggesting underlying price pressures may be more persistent than headline figures indicate.
Market Implications
The projection, if confirmed by the official PCE release later this month, could complicate the Fed’s path to rate cuts. Traders have already dialed back expectations for monetary easing this year, with swaps pricing in just one full cut by December. "The Fed is looking for sustained progress, and this suggests we’re not quite there yet," said one fixed-income strategist familiar with Goldman’s research. Bond yields edged higher following the report, while equity futures dipped slightly.
Data Dependencies Ahead
Thursday’s producer price index (PPI) report will be scrutinized for confirmation of the trend. A hotter-than-expected reading could further cement expectations of delayed rate cuts, whereas a softer print might ease concerns. Fed officials, including Chair Powell, have emphasized the need for "greater confidence" that inflation is moving sustainably toward target before adjusting policy.
Goldman’s analysis notes that services inflation—a key focus for the Fed—remains elevated, particularly in housing and healthcare. The firm’s economists maintain their view that the first cut will likely come in September, but caution that "risks are tilted toward later action if core PCE fails to decelerate."