2024-08-30 18:31:57
Inflation, according to the Fed’s preferred measure, edged up in July as the Federal Reserve prepares to cut interest rates for the first time in more than four years.
this The Commerce Department reported on Friday that The personal consumption expenditures price index rose 0.2% month-on-month and 2.5% year-on-year, in line with the Dow Jones Industrial Average.
Excluding volatile food and energy prices, core personal consumption expenditures also rose 0.2% for the month, but were up 2.6% from a year ago. The 12-month figure was slightly below expectations for a 2.7% increase.
Fed officials tend to focus more on core inflation data as a better measure of long-term trends. Both core and headline inflation for the 12-month period were unchanged from June.
Core prices less housing prices, another key measure for the Fed, rose just 0.1% this month. As other inflation components fell, housing prices held up, rising another 0.4% in July, according to Friday’s report.
Elsewhere in the report, the Bureau of Economic Analysis said personal income rose 0.3%, slightly above expectations for a 0.2% gain, while consumer spending rose 0.5%, in line with expectations. Consumption growth remained strong despite a drop in the personal savings rate to 2.9%, the lowest level since June 2022.
In terms of components, inflation rates changed little over the past month. The BEA said prices for goods fell less than 0.1%, but prices for services rose 0.2%.
On a 12-month basis, goods prices fell less than 0.1%, while service prices rose 3.7%. Food prices rose 1.4% and energy prices rose 1.9%.
Markets showed little reaction to the news, with stock futures pointing to a slightly higher open on Wall Street and U.S. Treasury yields also moving higher.
The data “suggest that price stability has been reestablished in the U.S. economy,” wrote Joseph Brusuelas, chief economist at RSM.
“As the Fed begins to cut rates, the U.S. economy is on track to reach or exceed its long-run 1.8% growth rate, which should set the stage for growth and hiring,” he added. “With rates falling, these data support risk-taking by the business sector and by investors who now expect continued growth in the economic expansion.”
The report came as markets priced in a 100% chance of a rate cut in September, with the only uncertainty being whether the Fed would take gradual steps to reduce its benchmark rate by a quarter percentage point or be more aggressive by cutting rates by half a percentage point.
After Friday’s rate decision, markets were pricing in a slight preference for a quarter-point, or 25 basis point, cut, bringing the odds of a 50 basis point cut to 30.5%, according to CME Group’s FedWatch indicator.
In recent days, policymakers including Federal Reserve Chairman Jerome Powell have expressed confidence that inflation is moving back toward the Fed’s 2% target.
The Fed is now expected to shift from an almost exclusive focus on reducing inflation to at least an equal focus on supporting the labor market. While the unemployment rate remains low at 4.3%, it has trended upward over the past year, with surveys showing a slowdown in hiring and workers finding it increasingly difficult to find jobs.
Attention will now turn to the August nonfarm payrolls report due in a week, which is expected to show an increase in employment of about 175,000, according to FactSet.
1725067764
#Feds #preferred #inflation #measure #rose #July #line #expectations
