A key inflation gauge used by the Fed to track inflation was up 2.6% last month — a fresh signal that prices may have begun to ease recently after several months of stubbornly high readings

Stock market futures were up across the board early Friday morning as investors increased bets that the central bank will begin to cut interest rates later this year.

The personal consumption expenditures index, or PCE, is the Feds preferred measure of inflation.

Economists had expected the report to show a modest easing of inflation to 2.6% in May, following a 2.7% reading in April.

Thats down from the PCEs peak of 7.1% in the middle of 2022.

Other measures of inflation, including the consumer price index, have also eased significantly over the last two years.

Consumer prices excluding volatile food and energy costs — the closely watched core index — rose 0.2% from April to May.

That was down from 0.3% the previous month and was the smallest increase since October.

Measured from a year earlier, core prices climbed 3.4%, below last months 3.6% rise, and the mildest such increase in three years.

Grocery costs were unchanged, on average, from April to May, after actually falling 0.2% the previous month.

Food prices have risen just 1% over the past 12 months, though theyre still up about 20% from three years ago.

Average gas prices tumbled 3.6% nationally just from April to May, though theyre 2.2% higher than they were a year earlier.

The Fed is looking to engineer a “soft landing” — bringing down inflation without having to tip the economy into a recession.

The American economy expanded at a 1.4% annual pace from January through March, the slowest quarterly growth since spring 2022, the government said Thursday in a slight upgrade from its previous estimate.

Consumer spending grew at just a 1.5% rate, down from an initial estimate of 2%, in a sign that high interest rates may be taking a toll on the economy.

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The Commerce Department had previously estimated that the gross domestic product — the economys total output of goods and services — advanced at a 1.3% rate last quarter.

The first quarters GDP growth marked a sharp pullback from a strong 3.4% pace during the final three months of 2023.

Still, Thursdays report showed that the January-March slowdown was caused mainly by two factors — a surge in imports and a drop in business inventories — that can bounce around from quarter to quarter and dont necessarily reflect the underlying health of the economy.

Imports shaved 0.82 percentage point off first-quarter growth.

Lower inventories subtracted 0.42 percentage point.

Picking up the slack was business investment, which the government said rose at a 4.4% annual pace last quarter, up from its previous estimate of 3.2%.

Higher investment in factories and other nonresidential buildings and in software and other types of intellectual property helped boost the increase.

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