BlockBeats News, June 25th. The Federal Reserve's most closely watched inflation indicator, PCE, will be released tonight at 8:30 PM. The market expects a significant uptick in May inflation, which could rekindle rate hike bets. The overall PCE year-over-year increase for May is expected to reach 4.1%, up from April's 3.8%, hitting a high not seen since 2023. The core PCE, which excludes food and energy, is anticipated to rise to 3.4% year-over-year, surpassing April's 3.3% and reaching its highest level since October 2023. Since 2021, the core PCE has consistently exceeded the Fed's 2% inflation target.

This recent short-term inflation surge is mainly attributed to the spike in gasoline prices due to the May Iran conflict. Following the signing of a peace agreement between the US and Iran, oil prices have gradually retreated. However, core inflation has simultaneously strengthened, indicating that price pressures are not solely from geopolitical oil price disruptions. According to the CME FedWatch Tool, as of Wednesday, the market has priced in a 34% probability of a 25-basis-point rate hike in July.

Aditya Bhave, a US economist at Bank of America Securities, stated that this round of inflation rebound is partially due to tariffs and one-off disruptions. Nevertheless, persistent supply shocks have eroded the Fed's patience, and the deflationary pressure in the housing sector is nearly exhausted. Data shows that the core PCE dropped to 2.6% in April, the lowest since 2022, but the annualized growth rates for the past 3 and 6 months have hovered around 3.8%.