Macro/US Monetary Policy/Market Detail

Will core PCE YoY fall below 2.5% by June 2026?

activeInflation RegimeResolves: July 31, 2026

The Condition

Fed cuts ≥25bp at March 18, 2026 FOMC meeting

External probability: 5.9%Source: CME FedWatchResolves: March 18, 2026

Our Ensemble Estimates

If condition is true

32%

Model agreement: 89%

Given Fed cuts ≥25bp: Will core PCE YoY fall below 2.5% by June 2026?

If condition is false

33%

Model agreement: 90%

Given Fed holds: Will core PCE YoY fall below 2.5% by June 2026?

Causal Effect

-1pp(negligible)

A Fed cut has negligible effect on core PCE convergence — tariff pass-through and shelter dynamics dominate regardless of rate decisions

Unconditional probability:32.9%(blended: P(Y|T) × 5.9% + P(Y|F) × 94.1%)

Why This Matters

Tests whether inflation convergence completes to the 2.5% threshold. Core PCE is currently at 2.65% YoY, decelerating but stalled in the 2.5-3.0% zone. A rate cut could signal the Fed views inflation as sufficiently under control, but it could also weaken the dollar further (compounding tariff-driven import inflation) and add demand stimulus. The inflation regime analysis found tariff pass-through is the primary impediment to convergence.

Resolution Criteria

BEA Personal Income and Outlays report for May 2026 data (released late June 2026) shows core PCE price index YoY change below 2.50%

Source: BEA Personal Income and Outlays / FRED series PCEPILFEDate: July 31, 2026

Source Analysis

Core PCE MoM annualized: three consecutive clean months below 2.5% confirms MODERATING

Inflation RegimePERSISTENCEPriority: HIGH

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