(Reuters) – The personal consumption expenditure (PCE) price index rose 0.1% in August after an unchanged 0.2% increase in July, the Commerce Ministry said on Friday. Economists had forecast PCE inflation to rise 0.1%. In the 12 months to August, the PCE price index rose 2.2%, after rising 2.5% in July.
The core PCE price index excluding volatile food and energy components rose 0.1% after an unchanged 0.2% increase in July. In the 12 months to August, core inflation rose 2.7%, after rising 2.6% in July. The US Federal Reserve follows PCE price measures for its 2% inflation target.
MARKET REACTION:
STOCKS: U.S. stock futures settled 0.16%, pointing to a steady open on Wall Street
BONDS: 10-year U.S. Treasury yields fell to 3.762% and two-year yields fell to 3.584%
FOREX: The dollar index fell 0.4%
NOTES:
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NC (email note)
“The August PCE report supports the Fed’s decision to go big on September 18, although the key figures of 2.7% annualized suggest that another round of 50 basis points should be carefully watched unless the labor market suggests weakness.
“While the Fed cannot declare a complete victory over inflation, today’s report – at 2.2% annualized – underlines that overall inflation continues to move decisively in the right direction.
“Equity futures across the board are cheering the data as 10-year Treasury yields inch lower.”
JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VA (email note)
“Inflation is no longer the story in the PCE data for the Fed. Now it’s all about spending and keeping the economy strong. If you had any doubts about whether the Fed would move to 0.50 in September, that’s not the case now. These data suggest otherwise. 50 in November is likely.”
BRIAN JACOBSEN, CHIEF ECONOMIST, WEALTH MANAGEMENT ANNEX, MENOMONEE FALLS, WISCONSIN
“Powell can breathe a sigh of relief. After pushing for a 50 basis point cut instead of a more conventional 25 basis point cut, personal income and expenditure data so far bears out that decision. Core inflation was slightly lower than expected, as were income and expenditure figures. Private interest income has fallen for two months in a row and will likely continue to fall if the Fed cuts rates. Interest costs will not fall as quickly and that could continue to put pressure on consumption. Economic waves will probably leave some gasping for air.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“In principle, these figures confirm two things. First, inflation continues to decline and if you look at the annualized rate of 2.2%, we are not far from the Fed’s 2% target.”
“Personal income and spending were cooler than expected, which is another indication that the economy is slowing.”
“That’s good news for the markets in some ways, and it actually indicates that the Fed is likely to continue cutting spending, perhaps by another 50 basis points by the end of the year.”
“The reason (the muted reactions on index futures) is that it has been a very strong week and of course you know that personal income and spending suggests that the economy is weakening so you know that may be holding traders back.”
(Compiled by the Global Finance & Markets Breaking News team)
