The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) Price Index, remained unchanged in July at 2.5% year-over-year, according to government data released on Friday. This figure, while matching June’s, came in slightly below market forecasts. However, the report revealed strong consumer spending and income growth, suggesting a robust U.S. economy.
The monthly PCE inflation rate rose to 0.2% from June’s 0.1%, aligning with market expectations. Similarly, the core PCE inflation rate, which excludes volatile food and energy prices, grew by 2.6% year-over-year in July, consistent with the previous month.
Personal spending saw a significant jump in July, rising by 0.5% compared to the previous month’s 0.2% increase. This robust spending growth matched market expectations. Personal income also increased by 0.3% month-over-month, surpassing both the previous month’s growth and market expectations.
The slightly lower-than-expected July PCE report has further solidified expectations that the Federal Reserve will cut interest rates in September. However, the robust consumer spending and income figures suggest a healthy economy, potentially limiting the scope for aggressive rate cuts.
Market reactions to the report were mixed. The U.S. dollar index rose slightly after the release, while futures on major U.S. equity indices soared in premarket trading, with the S&P 500 and Nasdaq 100 contracts showing significant gains. The Dow Jones Industrial Average also hit fresh record highs on Thursday.
Overall, the July PCE report presents a mixed picture. While inflation remained steady, the strong consumer spending and income growth indicate a healthy economy. This, in turn, may temper expectations for large and aggressive interest rate cuts, despite the general sentiment favoring a rate cut in September.
