According to the latest report from the Commerce Department, the personal consumption expenditures (PCE) price index rose by 0.1% in August, following a 0.2% gain in July. Economists had predicted a 0.1% increase in PCE inflation. On a year-over-year basis, the PCE price index saw a 2.2% rise in August, slightly lower than the 2.5% increase in July.
The core PCE price index, which excludes volatile food and energy components, also increased by 0.1% in August, in line with the 0.2% rise in July. Core inflation advanced to 2.7% on a year-over-year basis, up from 2.6% in July. The Federal Reserve uses the PCE price measures to track its 2% inflation target.
Market Reaction
Stocks: U.S. stock futures are up by 0.16%, indicating a positive opening for Wall Street.
Bonds: The 10-year U.S. Treasury yield eased to 3.762%, while the two-year yield fell to 3.584%.
Forex: The fell by 0.4%.
Expert Comments
Quincy Crosby, Chief Global Strategist, LPL Financial, Charlotte, NC: The August PCE report supports the Fed's decision to be aggressive in September, with core inflation at 2.7%. Further rate cuts will be considered based on labor market conditions.
Jamie Cox, Managing Partner, Harris Financial Group, Richmond, VA: Inflation is no longer the main concern for the Fed, as focus shifts to sustaining economic growth. Another rate cut is likely in November based on the latest data.
Brian Jacobsen, Chief Economist, Annex Wealth Management, Menomonee Falls, Wisconsin: The recent data supports the Fed's decision to cut rates, as income and spending figures remain subdued. However, challenges may arise due to falling interest income and slowing consumption.
Peter Cardillo, Chief Market Economist, Spartan Capital Securities, New York: Inflation is trending lower, nearing the Fed's target of 2%. The weaker-than-expected personal income and spending data suggest a slowing economy, prompting expectations of further rate cuts.
Analysis
The August PCE report indicates a modest rise in inflation, with core inflation reaching 2.7%. This could influence the Federal Reserve's decision-making process regarding future interest rate cuts. The positive market reaction, with stocks edging higher and bond yields easing, reflects investor optimism. However, concerns about weakening economic indicators, such as personal income and spending, suggest a cautious approach. Overall, the data highlights the delicate balance between inflation management and economic growth, shaping the future monetary policy landscape and impacting individual finances.
