Advisors take note: PCE cools in June, but don't expect the Fed to turn dovish yet

The latest Personal Consumption Expenditures price index data, released early Thursday, offered some good news for consumers weary of elevated inflation. But advisors and investors should not see it as a signal for the Fed to assume a dovish stance on interest rates.

PCE, which is the Federal Reserve’s preferred gauge of inflation, rose 3.7% year-over-year in June, down from an annual increase of 4.1% in May, according to the Bureau of Economic Analysis. The June PCE number is in line with the forecast from economists surveyed by Dow Jones Newswires and the Wall Street Journal.

From the prior month, PCE decreased 0.1% in June, after increasing 0.4% in May, and was in line with economists’ forecast of a 0.1% decrease.

“After relentlessly rising for months, the Fed’s preferred inflation gauge finally cooled in June as oil prices eased,” said Nic Puckrin, macro analyst and founder of Coin Bureau. “That’s a glimmer of hope for households that have been crushed by mounting cost-of-living pressures, but it won’t be enough to sway the Fed.”

On Wednesday, the Federal Reserve maintained its strategy of keeping its policy rate steady at 3.5% to 3.75% in the central bank’s second meeting with Kevin Warsh as chair. Wednesday’s decision marks the fifth consecutive FOMC meeting with no change since the Fed made its last rate cut in December 2025. 

However, the decision to uphold the policy rate was not unanimous. Committee members Beth M. Hammack, Neel Kashkari, and Lorie K. Logan voted against the policy – marking a level of dissent against a early sitting Fed chairman not seen since the 1970s, according to reporting by Reuters – and preferred to raise the target range for the federal funds rate by 1/4 of a percentage point.

Speaking during the press conference that followed the latest FOMC meeting, Warsh said that he is looking at “a broader set of inflation than PCE,” according to the Wall Street Journal.

“Yesterday, chair Kevin Warsh made it clear that one good print won’t change the trajectory of monetary policy,” said Puckrin. “Plus, three of his colleagues voted to raise rates. It will take a sustained move lower to convince policymakers that inflation is under control.”

Puckrin notes that this could be hard to achieve if tensions in the Middle East keep oil prices elevated. “On top of this, core PCE remains well above target,” he said. “This print gives the doves some ammunition for September’s meeting, but don’t mistake it for a victory over the hawks.”

The Core PCE price index, which excludes food and energy, rose 0.1% in June, below economists’ expectations of a 0.2% increase. On a year-over-year basis, Core PCE rose 3.3%, in line with economists’ forecast.

Interest rates play an important role in financial decision-making for families and investors. This can also prompt shifts in advisors’ strategies for their clients, such as making changes to fixed income allocations or talking to clients about rate hike risk.

The Bureau of Economic Analysis also released its GDP advance estimate for the second quarter Thursday, noting that real GDP in April, May, and June increased 1.5%. Economists surveyed by Dow Jones Newswires and the Wall Street Journal were looking for GDP to rise 1.8%.

“The weaker than expected GDP numbers this morning could be cause for concern that the economy is slowing too quickly,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management. “On the other hand, the lower PCE readings should give the Fed some more room to be patient and not raise interest rates prematurely.”

These sentiments are echoed by Jamie Cox, managing partner for Harris Financial Group. “These [PCE and GDP] data confirm what we already knew—but for the energy shock, inflation would be heading lower,” he said, in a note. “The Fed made the right call yesterday to stand pat on rates.”