The PCE for the US economy, the Fed’s preferred inflation indicator, was released. The data is important because it confirms the market’s hopes of a rate cut in September.
The futures of Wall Street expects a positive session after the day The Dow Jones Industrial Average was mixed on Thursday, with the Dow rising while the S&P 500 and Nasdaq, which are more closely tied to technology, fell. Unless something unexpected happens, the industrial index will end the week in positive territory, while the other two, which are more exposed to the technology sector, will probably end with losses.
In July, PCE inflation (the Personal Consumption Price Index), which is the Federal Reserve’s preferred measure of inflation, came in at 2.5%, beating expectations of 2.6%. This result indicates a slight slowdown in overall inflation, compared to market expectations.
On the other hand, core PCE inflation, which excludes the most volatile components such as food and energy, came in at 2.6%, also below expectations of 2.7%. This figure suggests stability in the underlying trend in prices, with a slight moderation compared to analysts’ projections.
Both headline and core PCE inflation remained constant compared to June levels, reflecting continuity in inflationary dynamics without significant changes in price trends.
Given this situation, the Federal Reserve is likely to consider a rate cut at its next meeting in September. The lower inflation observed could provide the necessary space for the central bank to adjust its monetary policy and support the economy, in a context where inflation data is aligned with expectations of a more accommodative monetary policy.
What the market expected
Economists polled by the Wall Street Journal had expected headline PCE price index inflation to rise 0.2% in July, compared with a 0.1% increase in the previous month. Core inflation is expected to rise 0.2%, the same as the previous month. However, year-over-year inflation may not be as encouraging. The overall index is expected to remain at 2.5%The core index is expected to rise to 2.7% from 2.6% in the previous month.
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Federal Reserve
This is an annual base effect: since the readings a year ago were so low, the 12-month calculations will not show much improvement. Inflation will be lower if shorter periods are considered. For example, the 3-month annual rate should be below 2% in July.
What is the PCE?
The PCE, or Personal Consumption Expenditures Price Index, is a measure used in the United States to track the price evolution of goods and services consumed by households. It is one of the metrics preferred by the Federal Reserve (Fed) to assess inflation, as it offers a broader and more accurate view of the changes in prices faced by consumers, compared to other indices such as the Consumer Price Index (CPI).
The PCE includes a broader range of expenditures, including those made by or on behalf of consumers, and also adjusts its components to reflect changes in consumption patterns, making it more dynamic and representative of the economy in real time. There are two main versions of the PCE:
- General PCE: Includes all goods and services consumed.
- Core PCE: Excludes food and energy prices, which are more volatile, and is considered a more stable measure of long-term inflation.
Source: Ambito
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
