On Friday, local time, the US Bureau of Economic Analysis released the PCE Price Index for July. As the preferred inflation indicator for the Federal Reserve, the PCE data rose at a moderate pace in July, with household spending remaining healthy, paving the way for a rate cut next month.

Due to the overall conformity of the data to expectations, it had very little impact on the market's bet on a Fed rate cut, so it did not have a significant impact on the financial market. The major U.S. equity index futures rose slightly, while spot gold fell $6 in the short term and the U.S. dollar index rose 20 points.

Specifically, the core PCE price index, which excludes the volatile food and energy components, recorded an annual rate of 2.6%, consistent with the previous month and slightly lower than the market's expected 2.70%; the monthly core PCE price index recorded a 0.2% increase, consistent with the previous month and in line with market expectations.

In July, the overall PCE price index increased by 2.5% year-on-year, with an expected growth rate of 2.6%; the month-on-month increase was 0.2%, in line with expectations.

Economists point out that the inflation rate converted to an annual rate for three months is 1.7%, the lowest level this year, which more accurately reflects the inflation trend.

The latest PCE inflation report supports the view that it is now time to begin easing monetary policy. Combined with preliminary signs in the labor market and ongoing cooling of inflation, this explains why Fed Chairman Powell made such comments last week, stating, 'We are neither seeking nor welcoming further cooling of the labor market; it is time to adjust policy.'

At the same time, actual personal consumption expenditure rose by 0.5% month-on-month, consistent with expectations; personal income grew by 0.3%, slightly higher than the expected 0.2%. Despite the personal savings rate falling to 2.9%, the lowest level since June 2022, spending remains stable.

From a price perspective, inflation has remained almost unchanged over the past month. The Bureau of Economic Analysis said that commodity prices fell by less than 0.1%, but service prices rose by 0.2%.

On a 12-month basis, commodity prices also fell by less than 0.1%, while service prices rose by 3.7%. Food prices rose by 1.4%, and energy prices rose by 1.9%.

At the time of this report, the market expects a 100% chance of a rate cut in September, and the only uncertainty is whether the Federal Reserve will take a gradual approach and cut the benchmark interest rate by 25 basis points or take a more aggressive approach and directly cut 50 basis points.

According to the CME's FedWatch Tool, the probability of a 25 basis point rate cut in September has approached 70%, up from 67.5% before the data was released.

CFRA Research Chief Investment Strategist Sam Stovall stated that today's US PCE report is basically in line with analysts' expectations. Stocks and fixed income markets have not reacted much. The impact of this report may be insignificant. However, it does confirm what Federal Reserve Chairman Powell said, which might be the focus on employment trends, as people believe that inflation trends may continue toward the 2% target. He believes that inflation is not a concern for the Federal Reserve. However, the Federal Reserve will closely monitor the employment situation.

Mark Zandi, chief economist at Moody's Analytics, believes that this report is very 'accurate', and most importantly, it indicates that inflation continues to slow down, and it is only a stone's throw away from the Federal Reserve's target.

Editor/ping