The latest reading of the Fed’s inflation indicator showed prices rose in July at a pace in line with Wall Street expectations.
The core personal consumption expenditures (PCE) index, which excludes food and energy costs and is closely watched by the Federal Reserve, rose 0.2% in July from the previous month, matching Wall Street expectations of 0.2% and the 0.2% recorded in June.
Compared to the previous year, prices rose 2.6% in July, equal to the annual increase in June and below analysts’ expectations of a 2.7% increase.
The report is the first look at inflation since Fed Chairman Jerome Powell all but confirmed in a speech in Jackson Hole, Wyoming, that the Fed will cut rates next month. Powell said “the time has come for policy action.” Powell added that he has “grown” confident that inflation will return to the Fed’s 2% target.
Friday’s report will do little to change Powell’s assessment of the situation.
Economists argue that while the decline in inflation remains paramount for the Fed as it weighs whether to cut rates, concerns about the deterioration in the labor market have also entered the picture. This, Ryan Sweet, Oxford Economics’ chief U.S. economist, told Yahoo Finance, puts a “lesser emphasis” on monthly inflation numbers.
“It’s not going to be an easy ride,” Sweet said on Aug. 23. “There are going to be bumps in the road with the inflation numbers.”
Still, Sweet noted that the Fed’s preferred measure of inflation is still “within spitting distance” of the Fed’s target.
Investors are expecting a rate cut in September, but debate continues over how much the Fed will cut. As of Friday morning, markets are pricing in about a 33% chance that the central bank will cut rates by 50 basis points by the end of its September meeting, according to the CME FedWatch Tool.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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