The Federal Reserve's preferred inflation gauge cooled meaningfully in March, with headline Personal Consumption Expenditures (PCE) inflation slowing to 2.4% year over year from 2.7% in February — the lowest reading since September 2025, according to Bureau of Economic Analysis data released Friday. Core PCE, which excludes volatile food and energy prices, eased to 2.6% from 2.8%, also reaching a six-month low.
The data significantly strengthens the case for a June 17-18 Federal Open Market Committee rate cut, with CME FedWatch now pricing a 68% probability of a 25-basis-point reduction — up from 22% one week ago and roughly 12% one month ago. Markets are also pricing approximately 73 basis points of total Fed easing through year-end, equivalent to nearly three full quarter-point cuts.
Services Inflation Finally Cracks
The most encouraging element of the report was the meaningful easing in services inflation, which has been the stickiest component throughout the post-pandemic period. Core services PCE excluding housing — Powell's closely watched "supercore" measure — slowed to 2.9% on a 3-month annualized basis from 3.6% in February. Shelter inflation eased to 4.1% year over year, the lowest since 2022, as multi-family rent disinflation continues to feed through.
"This is precisely the kind of broad-based services disinflation the Fed has been waiting for," wrote Pantheon Macroeconomics chief U.S. economist Ian Shepherdson. "Combined with the energy price reset from the Iran ceasefire, we now expect core PCE to print sub-2.5% by the August reading. The June rate cut is essentially fait accompli."
Powell Speaks Tuesday
Federal Reserve Chair Jerome Powell is scheduled to deliver a closely watched speech at the Hoover Institution on Tuesday afternoon — his last opportunity to publicly comment before the FOMC blackout period begins. Markets will scrutinize Powell's language for any hints of resistance to the June cut narrative or, alternatively, validation that the easing cycle is set to resume.
San Francisco Fed President Mary Daly told CNBC Friday that the inflation data was "encouraging but not yet sufficient" for her to commit to supporting a June cut. Chicago Fed President Austan Goolsbee was more dovish, telling Bloomberg that "if the next two months of data look like the March print, the case for resuming policy normalization becomes very strong." The diversity of views reinforces that the June FOMC will be a closer call than markets currently price.