Preview: The U.S. Core PCE for May will be released at 8:30 PM tonight, potentially reaching its highest level since October 2023.

On June 25, the Fed’s most closely watched inflation indicator, the PCE, will be released at 8:30 PM tonight. The market expects inflation to rise significantly in May, which may reignite bets on rate hikes. The year-over-year increase in the overall PCE for May is expected to reach 4.1%, up from 3.8% in April, hitting a high since 2023. The core PCE, excluding food and energy, is expected to rise to 3.4% year-over-year, up from 3.3% in April, marking the highest level since October 2023. Since 2021, core PCE has consistently exceeded the Fed's 2% inflation target.

The short-term rise in inflation this round is mainly driven by the surge in gasoline prices due to the conflict in Iran in May. After the U.S.-Iran peace agreement was signed, oil prices have gradually fallen back, but core inflation has also strengthened, indicating that price pressures are not entirely driven by geopolitical oil price disruptions. According to the CME FedWatch Tool, as of Wednesday, the market priced a 34% probability of a 25-basis-point rate hike in July.

Aditya Bhave, an American economist at BofA Securities, stated that part of this rebound in inflation comes from tariffs and one-time disruptions, but consecutive supply shocks have exhausted the Fed's patience, while the space for deflation in housing has largely been exhausted. Data shows that core PCE fell to 2.6% in April, the lowest since 2022, but the annualized growth rates of core PCE over the past three and six months are both close to 3.8%. #BTC下探60000美元关键关口