Payam Javan: The Federal Reserve’s preferred inflation measure, the personal consumption expenditure (PCE) price index, has recorded a result that is lower than anticipated, potentially paving the way for a rate cut as early as September. The Bureau of Economic Analysis (BEA) reported that the annual PCE price index remained steady at 2.5% in July, slightly below the forecast of 2.6%. The monthly PCE increase was 0.2%, aligning with market expectations, while core PCE, which excludes food and energy, held at 2.6%, under the predicted 2.7%.

The BEA data also revealed mixed trends in prices, with goods prices dropping by 0.1% and services prices rising by 0.2%. Notably, motor vehicles and healthcare were significant contributors to these changes. Food and energy costs saw modest increases of 0.2% and 0.1%, respectively. Personal income grew by 0.3%, exceeding expectations, while personal spending rose by 0.5%. The personal savings rate fell to 2.9%, marking its second lowest level since the 2008 financial crisis.

Market reactions have been somewhat positive, with U.S. stocks maintaining gains and Treasury yields showing minimal changes. The U.S. dollar index extended its gains, rising to 101.51. Economist opinions on the PCE report are divided; while some see it as supportive of a Fed rate cut, others, like Peter Schiff, believe inflation may not drop to the Fed’s 2% target. The Fed’s focus remains on the labor market, with potential rate cuts anticipated in the latter part of 2024, depending on forthcoming economic data and employment trends.