The Federal Reserve’s preferred measure of inflation held steady in July, suggesting the central bank can continue to shift its focus to the cooling job market as price pressures ease into the autumn months.
The Bureau of Economic Analysis’s PCE Price Index showed core prices rose at an annual pace of 2.6% last month. The figure was just inside Wall Street’s 2.7% forecast and was unchanged from June, which was the slowest reading since March 2021.
On a monthly basis, core pressures were up 0.2%, unchanged compared with June’s 0.2% gain and matching Wall Street’s consensus estimate.
Markets often key on the bureau’s core PCE price index, which the Fed considers a more accurate representation of consumer-price pressures since it blends changes in spending patterns.
The headline index, meanwhile, held at an annual rate of 2.5%, again inside Wall Street’s forecast of 2.6%. Prices rose 0.2% on the month, the BEA said, following a 0.1% gain in June.
The BEA also noted that personal incomes for July rose 0.3%, up from the 0.2% pace in June, reflecting some resilience in the labor market. Spending, however, was up 0.5%, a firmer advance than the 0.3% pace recorded in June.
Markets have locked-in bets that the Federal Reserve will deliver its first rate cut in four years when it meets next month in Washington.
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Stock futures were little changed following the data release, with the S&P 500 indicated 21 points higher at the start of trading and the Dow Jones Industrial Average called 75 points higher.
Benchmark 10-year note yields nudged 2 basis points higher to 3.875% following the data release, while 2-year notes rose to 3.925%.
Earlier this month, the Commerce Department’s headline Consumer Price Index for July was pegged at 2.9%, down from the prior month’s tally of 3% and the lowest since March 2021.
So-called core inflation, which strips out volatile components like food and energy, slowed to an annual rate of 3.2%. That was the lowest rate in more three years and matched Wall Street’s 3.2% forecast.
CME Group’s FedWatch tool suggests the market has fully locked in a Federal Reserve interest-rate cut in September, which would be the first in four years. FedWatch puts the odds of an outsized 50-basis-point reduction around 33%.
Bets that the Fed will continue its rate-cutting cycle into the end of the year and beyond are also on the rise, with FedWatch pegging the Federal Funds rate at 3.875% by March 2025.
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