The US Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, held steady at 2.5% year-over-year in July, aligning with economists’ expectations. This stability in inflation data has bolstered anticipation for a potential interest rate cut by the Federal Reserve, possibly as soon as September.The core PCE, which excludes volatile food and energy prices, rose 0.2% month-over-month and 2.6% year-over-year, slightly below the 2.7% forecast. This data suggests a continued trend of disinflation, as noted by Nigel Green from deVere, who stated, ‘The PCE data show a sustained trend of disinflation’.Consumer spending increased by 0.5% in July, following a 0.3% expansion in June, while personal income rose by 0.3%. These figures indicate resilient consumer behavior despite economic uncertainties. However, James Knightley pointed out that the savings rate has dropped to 2.9%, a level not seen since before the Great Financial Crisis, raising concerns about the sustainability of consumer spending.The stable inflation data, combined with strong consumer spending and employment figures, has led to mixed opinions about the size and timing of potential rate cuts. While some analysts, like Peter Cardillo of Spartan Capital, believe the data supports a rate cut in September, others suggest that the strong economic indicators might lead to a smaller cut than initially anticipated.Market reactions to the inflation data were relatively muted. The S&P 500 opened higher but gave up most of its gains as investors weighed the implications for next month’s Fed meeting. The dollar index rose 0.1%, while oil prices fell slightly.As the Federal Reserve’s next meeting approaches, all eyes will be on the upcoming jobs report, which could significantly influence the decision on rate cuts. Jerome Powell, Federal Reserve Chairman, has indicated that policymakers want to avoid any further softening of the labor market, adding another layer of complexity to the Fed’s decision-making process.
Key points
- US PCE inflation index remained stable at 2.
- Core PCE rose 2.
- Consumer spending increased by 0.
- The data has increased expectations for a potential Fed rate cut in September, though the size remains uncertain.
5% in July, meeting expectations.
6% year-over-year, slightly below the 2.
7% forecast.
5%, while personal income rose by 0.
3%.
Contradictions👾While some analysts expect a rate cut in September, others suggest that strong economic indicators might lead to a smaller cut or delay.
