After a tumultuous week filled with geopolitical events, traders now switch their attention towards “traditional” economic news releases and to be specific, the release of the Core PCE index update for the month of May.

Given the fact that the Federal Reserve primarily focuses on the aforementioned release in order to gauge the potency and trajectory of price pressures across the United States and thus deploy their monetary policy practices accordingly, traders will inadvertently be drawn to the release to shore up details and come to their own assessments.

The central bank and more specifically the Chair of the Reserve, Jerome Powell, has explicitly highlighted that the projected upside risks of inflation from Trump’s tariffs, will most likely force officials to stay cautious and maintain their current policy path, hence today’s release is deemed once again critical in the eyes of market participants.

Expectations from economists point to a 0.1% rise of the yoy PCE index that excludes volatile food and energy prices, rising to the 2.6% level and showcase relative stickiness, failing to head decisively lower towards the bank’s 2% inflation target. Nevertheless, a reading of 2.6% will most likely keep the central bank on hold for a relatively short period of time, since policymakers themselves have showcased their bias towards looser financial conditions, by drafting in their dot plot graph, two rate reductions amounting to a cumulative total of 50bps in 2025, leaving a key policy rate of 3.75-4% at years end.

Money markets have now already (not fully) priced in the scenario of two cuts, once in September and the other in October for a total of 50bps of easing and have now started to ramp up odds for another cut in December, going beyond what the Fed projected. Evidently a possible reason that led to the upward revision of odds for the 3rd cut, may have been yesterday’s final GDP print for the 1st quarter of 2025, which showcased a deeper contraction that what the market assessed, with the rate slipping to – 0.5%, indicating possible struggle signs within the US economy from the Fed’s restrictive policy practices in tandem with the first wave of tariff impacts.

Hence, should today’s PCE print showcase an abnormal reacceleration of inflationary pressures, thus the need of policy staying restrictive for longer, that may cause a larger knock-on effect on the US economy in the next quarter and rise drastically the odds for more serious problems, hence more urgency for swifter rate reductions. On the other hand, should the PCE print showcase a surprise fall below expectations, closer to the 2% area, the Fed will most likely exhale in relief and go forth with its pre-charted path and prolong its pause period.

Technical Analysis

Gold Chart – Gold slips as markets foresee more cuts from the Fed post larger than expected GDP contraction

Resistance: 3420 (R1), 3500 (R2), 3600(R3)
Support: 3300 (S1), 3210 (S2), 3140 (S3)