The latest reading of the Federal Reserve's preferred inflation gauge showed price increases accelerated in May as inflation remained above the Fed's 2% target. The release comes as investors have been closely watching data releases for signs of when, or if, the Federal Reserve will cut interest rates this year.

The "core" Personal Consumption Expenditures (PCE) index, which strips out food and energy costs and is closely watched by the central bank, rose 2.7% on an annual basis, above the 2.6% economists had expected and higher than the 2.6% seen in April. The April reading was revised higher to 2.6% from an originally reported 2.5% increase.

Core prices rose 0.2% in May from the prior month, above the 0.1% economists had expected, which would have been in line with April's increase.

On a yearly basis, overall PCE increased by 2.3%, above the 2.2% increase from the month prior.

The data's release comes after Federal Reserve Chair Jerome Powell testified in front of House lawmakers, stressing that the central bank is "well-positioned to wait" before moving interest rates.

But debate over when the central bank will cut interest rates has been heating up. Entering Friday's release markets were pricing in a 27% chance the central bank cuts interest rates at its next meeting in late July, up from a 12.5% chance seen last week, per the CME FedWatch Tool. Odds of a cut by the end of September had also surged, with markets now pricing in a 92% chance the central bank will have lowered rates by then, up from a 64% chance seen just a week ago.