Forecasts for June PCE Show Cooling Inflation Ahead of Fed’s Next Meeting

Key Takeaways

• Economists forecast that the Personal Consumption Expenditure Index rose 0.04% in June and 3.80% from year-ago levels.
• Inflation will look slightly cooler, analysts say, as oil prices declined last month amid easing war tensions in the Middle East, though there is a risk of renewed pressures.
• While most economists have not projected rate hikes for the July FOMC meeting, markets expect the Fed to act before the end of the year.

Economists expect the June Personal Consumption Expenditures Price Index to offer relief from the several-month-long inflation runup fueled by higher oil prices. Inflation is expected to improve from last month’s three-year high, but year-over-year inflation is forecast to remain well above the Federal Reserve’s 2% target.

Overall, economists expect the Fed’s preferred inflation index to rise 3.8% in June from year-ago levels, down slightly from the prior month, according to FactSet. The month-over-month reading shows PCE could rise 0.04% in June. Core PCE, which excludes volatile food and energy prices, is expected to rise 0.23% month over month and 3.40% year over year.

Oil prices declined in June, likely making for a softer inflation reading, according to economists. However, concerns remain for the months ahead, as renewed oil price volatility likely won’t keep inflation risks at bay.

With June inflation readings expected to show momentary cooling, the Fed is not expected to raise rates at its July meeting, according to economists. That said, year-over-year inflation is still running hotter than the Fed would like, and the labor market appears resilient. Kevin Warsh has offered little guidance since stepping in as Fed chair, and questions remain about the central bank’s next moves. Bond market traders are still betting that the Fed will hike interest rates before the end of the year, according to CME FedWatch.

“We expect the peak in inflation for the year is past, and over the next few months, inflation is likely to ebb amid easing gasoline prices and slowly diminishing tariff effects,” UBS Economist Alan Detmeister writes. “The recent uptick in oil prices and the upcoming implementation of Section 301 tariffs will likely make the downward trend volatile, with inflation edging up in some months too.”

June PCE Inflation Report Highlights

• PCE report release date and time: Thursday, July 30, at 8:30 a.m. EDT
• The PCE deflator is forecast to rise 0.04% in June after rising 0.45% in May.
• Core PCE is forecast to rise 0.23% in June after rising 0.32% in May.
• The PCE is forecast to rise 3.8% year over year in June after increasing 4.1% in May.
• Core PCE year over year is forecast to rise 3.4% in June after increasing 3.4% in May.

Inflation Likely to Cool from Recent Peak

June’s inflation reading is expected to come in milder than the previous month. Detmeister expects overall PCE to decrease 0.06% from the previous month, while the yearly reading will show inflation rising 3.71%. He expects core PCE to rise 0.18% in June, and fall slightly to 3.34% from year-ago levels.

Additionally, with the Bureau of Economic Analysis revising data from the past five years, Detmeister expects core PCE to be revised down from 0.20% to 0.25%. He says the revisions won’t impact future projections, and he expects slowed price increases for financial services and computer software and accessories. However, he thinks that with renewed geopolitical tensions, inflation could flare up again in the coming months.

Vanguard senior economist Josh Hirt anticipates softer inflation readings across the board in June, due to the month’s decline in energy prices. One area he highlights is non-housing services—which include expenses such as healthcare, transportation, and food—as they account for more than half the inflation basket and ran at an annualized 4.7% in the first quarter of 2026. Hirt expects a softer reading for non-housing services this month, adding that more clarity is needed before deciding whether this year’s inflation peak is over.

“We’re very much not in a moment of clarity,” Hirt says. “We certainly won’t get the same kind of headline disinflation that we’re going to see this month from energy prices. We expect things will not be as high as earlier this year, but we’re still slowly marching down toward 3% [in year-over-year inflation].”

Bank of America economists expect the June PCE to decrease 0.05% from last month and remain up 3.70% on an annual basis. They expect Core PCE to increase 0.16% month over month, lowering the year-over-year rate to 3.30%. “We also expect spending in April and May to get marked up, based on revisions in the June retail sales report,” they write. “Stepping back, the broad picture is one of sticky inflation and consumer resilience.”

Fed Expected to Leave Rates Unchanged at July FOMC Meeting

Markets are largely expecting the Fed to keep rates in the 3.50%-3.75% range at the July FOMC meeting, though they see a 37.90% chance of a quarter-point hike, according to the CME FedWatch Tool. Further out, market participants expect at least one rate hike by the December FOMC meeting. Investors currently price in a roughly 40% chance of a quarter-point hike and a nearly 20% likelihood of an additional one this year.

Bank of America economists expect a total of three quarter-point hikes this year. “Our base case is that the Fed will stay on hold at 3.50%-3.75% in July,” they write. “But the spike in oil prices has made it a close call. Not hiking could challenge the Fed’s credibility on inflation. But raising rates would go against [Warsh’s] framework of looking through supply shocks.”

Vanguard’s Hirt expects the Fed to stay put on interest rates this year. He thinks that if price pressures continue to ease, the central bank has room to wait for additional softer inflation readings that move closer to its 2% target. “Our view at the moment is for the Fed to be on hold this year,” he says. “You’re going to need to see some continuation toward 2%, and if it were to stall at all, that’s definitely a catalyst for the Fed to change course a bit. We’re still trying to understand how the new chair and how the committee will be thinking about inflation. That’s one reason we would advocate for some patience.”