The Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred measure for inflation, has shown signs of cooling, marking a 0.3% rise over the month, a decrease from January’s 0.5%. This deceleration eases the pressure to maintain interest rates at their current high levels.

Jeffrey Roach, LPL Financial’s Chief Economist, suggests that by the time the Federal Reserve convenes in June, the accumulating data will be persuasive enough to initiate the process of rate normalization. However, he emphasizes the importance of patience, mirroring the Federal Reserve’s cautious approach.

The annual increase of the PCE index is at 2.5%, a slight uptick from the previous month’s 2.4%. Despite this, the trend over the past four months points to a consistent slowdown in inflation rates. Even when discounting the unpredictable food and energy sectors, the core PCE index shows a continued decline, standing at 2.8% year-over-year.

The detailed breakdown of the report reveals a deceleration in core services prices, a trend Roach anticipates will persist throughout the year. This slowdown in price increases for services suggests that there’s diminishing justification for the Fed to consider rate hikes, countering the views of certain peripheral analysts.

Furthermore, the report indicates that spending on services has reverted to its pre-pandemic patterns. This adjustment suggests that disposable incomes are balancing out, likely leading to a moderation in consumer spending growth in the upcoming months. Given that consumer spending is a significant pillar of the U.S. economy, this moderation is a welcome development.

Jeffrey Roach views this latest inflation data as a positive signal for the markets, indicating that the worst of inflationary pressures might be behind us, and setting the stage for a much-anticipated policy shift by the Federal Reserve in June. This potential move could mark a significant turning point in the current economic climate, offering hope for relief to those burdened by the high interest rates of recent times.