The key Fed inflation rate has dropped to its lowest yearly level in nearly two years.

According to a barometer issued Friday that the Federal Reserve constantly monitors, inflation showed additional indications of slowing in June.

According to the Commerce Department, the personal consumption expenditures price index excluding food and energy climbed by 0.2% from the previous month, in accordance with the Dow Jones forecast.

Core PCE increased 4.1% year on year, compared to a 4.2% increase predicted. The annual rate was the lowest since September 2021, and it was down from 4.6% in May.

Headline PCE inflation, which includes food and energy expenditures, climbed 0.2% month on month and 3% year on year. The annual rate was the lowest since March 2021, falling from 3.8% in May.

In fact, goods prices fell 0.1% month on month, while services gained 0.3%. Food prices declined 0.1%, but energy costs rose 0.6%.

Markets reacted favorably to the data, with stock market futures rising and Treasury rates falling.

“Today’s economic releases reaffirm the current market narrative that inflation is cooling and economic growth is continuing, which is a favorable environment for risk assets,” said Key Private Bank’s chief investment officer, George Mateyo. “The Fed and investors will take comfort in these numbers because they suggest that the inflation threat is dissipating, and thus the Fed may now be able to go on vacation and assume an extended pause with respect to future interest rate increases.”

The data supports previous recent disclosures that demonstrate that, at least as compared to a year ago, prices have begun to fall. Consumer price index readings, for example, reflect a slower rise in inflation, while consumer expectations are also returning to longer-term tendencies.

Fed officials constantly monitor the PCE index because it compensates for changes in consumer behavior and gives a different view of pricing developments than the more generally reported CPI.

Along with the inflation figures, the Commerce Department reported that personal income climbed by 0.3% while spending jumped by 0.5%. Income was somewhat lower than expected, but spending remained consistent.

The revelation comes only two days after the Fed announced a quarter-point interest rate rise, the 11th since March 2022 and the first since the June meeting was canceled. The central bank’s main borrowing rate rose to 5.25%-5.5%, its highest level in more than 22 years.

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Following the raise, Fed Chairman Jerome Powell stated that future rate decisions will be based on incoming data rather than a predetermined policy trajectory. Despite recent favorable improvements, central bank officials feel inflation is still too high and want to see many months of strong data before altering course.

According to a different statistic that the Fed routinely monitors, compensation expenditures climbed by 1% year on year during the second quarter. The employment cost index figure was somewhat lower than the 1.1% expectation.

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