The Fed’s favorite inflation gauge money is expected to show the slowest progress on Friday

If that forecast holds, it would represent a slight drop in the prime rate and little change in the overall rate, though economists will be watching annual and monthly measures. Inflation is expected to drop to 0.2%, which will represent at least some progress in easing price pressure on weary consumers.

Overall, the report, due at 8:30 am ET, will likely point to another move back to the Federal Reserve’s 2% rate.

“We don’t expect any surprises to the upside or downside in Friday’s PCE as most recent economic data points to the economy settling into a long-term sweet spot that’s not too hot and not too cold, ” said Carol Schleif. chief investment officer at BMO Family Office. “That said, getting to the Fed’s 2% target is bound to be a tough spot.”

These days it seems difficult to deal with inflation.

The Fed breaks down the data in many ways, most recently introducing what is known as a “super-core” level that focuses on the cost of services other than food, energy and housing as a way to measure long-term trends.

However, policy makers’ expectations that the housing price slump will recover this year have been largely dashed, which has caused another rift in the debate.

In addition, the Fed’s choice of PCE is very small, since the public is focused on the consumer price index of the Department of Labor, which showed very high trends. CPI inflation reached 3.4% for the balance of all items in April and 3.6% for the core, above the Fed’s target.

The Fed chooses the PCE measure because it accounts for changes in consumer behavior, such as consumers substituting less expensive items for cheaper ones. The idea is that this method provides a better view of the actual cost of living than absolute prices. Fed officials focus more on the core as it serves as a better long-term indicator.

The Commerce Department delivered good news on Thursday — again, modestly — when it reported that PCE for the first quarter rose 3.3% in headline and 3.6% in core, both 0.1 percent. lower than the first rate. Similarly, the “chain-weighted” index was at 3%, also 0.1 percent lower than the first edition.

However, those figures are still a good deal away from the Fed’s target. Markets have been sensitive to inflation movements, particularly as they reflect the central bank’s interest rate plans. Current expectations are for one rate cut this year, likely in November, according to CME’s FedWatch index of futures rates.

“Economists are optimistic that the monthly reading in this report will be higher than the CPI, and any disappointment could cause markets to consider the prospect of any slowdown in 2024,” said Matthew Ryan , head of marketing strategy at global financial services firm Ebury.

New York Fed President John Williams, part of the central bank’s leadership that includes Chairman Jerome Powell and Vice Chairman Philip Jefferson, said on Thursday he expected PCE inflation to continue to decline, to to about 2.5% at the end of the year. before reaching 2% in 2026.

“We have a strong supply and manufacturing boom in the economy. So that’s how I know what’s going on,” Williams said. “It’s always a big question how that will change in the future.”