The Federal Reserve’s preferred measure of inflation held steady in June, data indicated Friday, but softening trends in income and spending will likely cement the case for an autumn rate cut.
The Bureau of Economic Analysis’ PCE Price Index report showed core prices rose at an annual rate of 2.6% last month, matching last month’s reading but coming in modestly higher than Wall Street’s 2.5% forecast.
Core pressures, which strip away volatile food and energy prices, were up 0.2% on the month, a quicker pace than May’s 0.1% gain and again just ahead of Wall Street’s consensus estimate.
Markets focus on the core PCE inflation reading, which the Fed considers a more accurate representation of overall price pressures, as it incorporates changes in consumer spending patterns.
Fed Chairman Jerome Powell told lawmakers earlier this month that the central bank has been “waiting” for data that confirms inflation is returning to its 2% target.
The headline inflation index, meanwhile, held at an annual rate of 2.5%, matching Wall Street’s forecast and down from the 2.6% pace recorded in May. Prices were up 0.1% on the month, the BEA said, following an unchanged reading in May.
The BEA also noted that personal incomes for June rose 0.2%, down from the revised 0.4% pace in May, reflecting some softness in the labor market. Spending slowed to a 0.3% rise compared with the 0.4% gain over the previous month.
Related: Former Fed official changes tune on what’s next for interest rates
Stocks were little changed following the inflation data release, with the futures contracts tied to the S&P 500 suggesting a 42 point opening bell gain and the Dow Jones Industrial Average called 245 points higher.
Benchmark 10-year note yields slipped 2 basis points to 4.221% following the data release, while 2-year notes eased 2 basis points to 4.416%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.06% higher at 104.417.
The CME Group’s FedWatch now suggests just a 7% chance of a rate cut from the Fed next week, but pegs the odds of a quarter point reduction in September pegged at around 90%.
Earlier this month, the Commerce Department’s headline Consumer Price Index (CPI) for June was pegged at an annual rate of 3%, down from 3.3% in the prior month and matching the lowest levels in three years.
On a monthly basis, price pressures fell 0.1% from May, in one of the largest declines in more than three years, thanks in part to a 4% decline in gasoline prices.
Related: Veteran fund manager sees world of pain coming for stocks
