Source: Jin10 Data
The PCE report still conveyed an encouraging signal to the Federal Reserve, indicating that they can cool inflation without harming the economy.
On Friday, the US Fed's most favored inflation index showed that inflation rose moderately in June, and consumer spending remained healthy, which is an encouraging sign for officials who hope to cool inflation without damaging the economy, and supports people's expectations of a Fed rate cut starting in September.
The US June PCE price index year-on-year growth rate fell from 2.6% in the previous month to 2.5%, and the month-on-month growth rate rebounded slightly to 0.1%, both in line with expectations. As for the core index, the June PCE price index recorded an annual rate of 2.6%, higher than the expected 2.5% and consistent with the previous value. The US June core PCE price index recorded a monthly rate of 0.2%, also higher than the expected 0.1% and unchanged from the previous month. The US personal spending rate for June recorded 0.3%, in line with expectations. The previous value was revised upward from 0.2% to 0.4%.
After the inflation data was released, US short-term interest rate futures rose slightly. Traders expect the Fed to keep interest rates unchanged in July and start cutting them in September. The US dollar index fell 20 points in the short term. Spot gold once approached its intraday high.
Overall, US prices rose moderately in June, highlighting an improving inflation environment, which may boost the confidence of Fed officials in moving towards the 2% inflation target and preparing for a rate cut in September.
Analyst Cameron Crise said that the US PCE price index roughly met expectations, but as mentioned earlier, the year-on-year change in core data was slightly higher than expected after some revisions. Considering the market's general expectations, the new level of the core index is also slightly higher than expected. Excluding housing, the core service spending data is not as mild as the corresponding data in the CPI report, with a month-on-month increase of 0.19%. The corresponding data for the previous month was revised upward from 0.1% to 0.18%.
He pointed out that these data are not enough to prevent the Fed from cutting rates in September, but there is also no sign that the Fed needs to cut rates early or by more than 25 basis points. The bond market may be reacting to weaker income/spending data, as inflation data doesn't seem strong enough to support any rebound.
US consumer spending grew moderately by 0.3% in June, helping the economy continue to expand at an above-average pace. Spending in May and April was also revised upward, indicating a healthier level of consumer spending.
Details of the report showed that after adjusting for inflation, service and commodity spending in June each increased by 0.2%. Housing and utilities drove the growth in service spending, while vehicles and entertainment products drove the growth in commodity spending. Signs of a cooling labor market are beginning to translate into a decline in purchasing power. Wages and salaries for June increased by 0.3%, which is half the previous month's growth rate. After adjusting for inflation, disposable income growth slowed to 0.1%. The June savings rate fell to 3.4%, the lowest since December 2022.
After cutting spending in the first three months of this year, households increased spending from April to June. According to GDP data, consumer spending grew at a year-on-year rate of 2.3% in the second quarter after growing 1.5% in the first quarter.
However, some economists question how long consumers can maintain their current level of spending in a situation of low income growth and low savings rates. They predict that spending will slow in the coming months, leading to weak US economic growth.
Editor/Lambor