Source: Caijing News Author: Shi Zhengcheng
According to the data, the core PCE price index in the United States increased by 0.2% month-on-month and 2.6% year-on-year in June. Against the background of the core PCE price index in the second quarter slightly higher than expected, the Bureau of Economic Analysis slightly revised its May data. The latest inflation data maintained the market consensus on the timing of the Fed's rate cut.
At 8:30 pm Beijing time on Friday, the Bureau of Economic Analysis of the US Department of Commerce released the PCE price index for June. As the "most concerned inflation index of the Fed", the latest data shows that the progress of declining inflation was relatively limited in June, but it was also within expectations.
According to the data, the PCE price index increased by 0.1% month-on-month and 2.5% year-on-year in June, and the previous value was 2.6%. The more concerned core PCE price index increased by 0.2% month-on-month and 2.6% year-on-year.
Of course, this number has been rounded, and the actual month-on-month growth rate of PCE in June is 0.18%, which is the same as the analyst's pre-expected value. Analysts also predicted that the month-on-month increase in the PCE price index in June was 0.08%, and the year-on-year increase was 2.5%.
Financial Association readers should still remember that yesterday's U.S. second-quarter core price index was slightly higher than expected, with the annualized quarterly rate of core inflation in April, May and June reaching 2.9%, slightly higher than expected. In this background, the premise that June data can meet expectations is due to the month-on-month inflation of core PCE rising from 0.08% to 0.13% in May, which is still "0.1%" after rounding.
In other data, personal income in June increased by 0.2% month-on-month, lower than the analyst's pre-expected value of 0.4%. The growth rate in May also dropped from 0.5% to 0.4%. Personal spending growth was also 0.2% month-on-month, with last month's data revised up from 0.3% to 0.4%.
It is worth mentioning that the personal savings rate of US residents in June further declined to 3.4%, and the previous value was 3.5%. This is still happening under the background of the continuous rise of government transfers to individuals (social welfare expenditures).
Market Reaction & Evaluation
After the basic data was released, the US stock index opened higher on Friday, especially the Nasdaq, which had fallen for three consecutive days, with an opening increase of nearly 0.8%. The yield on 10-year US Treasury bonds fell slightly, falling to around 4.20%. The US dollar index has fallen slightly, and the recently notable yen exchange rate has risen slightly, rising above the 154 mark after the release of US inflation data.
Chris Larkin, Managing Director of Investment and Trading Director of E*Trade, a subsidiary of Morgan Stanley, said: "It's a great week for the Fed. The economic foundation still looks stable and PCE inflation is basically stable. However, there is still little chance of a rate cut next week. Although there is still enough time for the economic situation to change before the September interest rate meeting, these numbers have been developing in the direction expected by the Fed recently."
With the completion of a series of inflation data this week, the importance of next week's financial reports from major companies such as Apple has once again been put on the table.
David Russell, Global Market Strategist at TradeStation, said that investors can now focus on the financial reports of major companies next week without worrying about inflation and interest rates, because the overall trend seems to have finally turned.
The rate cut consensus remains unchanged.
In short, as inflation gradually slows down according to the "script" envisioned by Fed officials, the pace of interest rate cuts is getting closer and closer. Since July 2023, the Federal Open Market Committee has set the target range for the federal funds rate at 5.25%-5.50%. The latest futures market pricing shows a 100% likelihood of a 25 basis point rate cut at the Fed's September policy meeting. The latest data in June has further reinforced the market consensus that "rate cuts are imminent, but not next week".
In the economic outlook released in June, Fed officials raised the median expectation for the core PCE price index growth rate in 2024 to 2.8%, and believed that this indicator could fall back to 2.3% in 2025, and finally complete the "deflationary mission" at some point in 2026.
The corresponding Fed rate cut roadmap for this logic is to cut to the 4%-4.25% range in 2025 (125 basis points from the current position), and to the 3%-3.25% range in 2026 (9 times with a 25 basis point rate cut from now).
Editor/Lambor