June PCE: Another Win for the Fed, and the Bulls

June PCE: Another Win for the Fed, and the Bulls

by

FOMC

The latest data released by the Commerce Department indicates that inflation has shown signs of cooling in June, as per the gauge closely monitored by the Federal Reserve. The personal consumption expenditures price index, excluding food and energy, rose by a modest 0.2% from the previous month, in line with the Dow Jones estimate.

The core PCE, which is a key metric for the Fed, increased by 4.1% from a year ago, slightly below the estimated 4.2%. Notably, the annual rate was the lowest since September 2021, marking a decrease from the 4.6% pace recorded in May. On the other hand, headline PCE inflation, which includes food and energy costs, also rose 0.2% on a monthly basis and 3% on an annual basis. This yearly rate was the lowest since March 2021, declining from 3.8% in May.

These data points confirm other recent releases, alluding to a slowdown in inflation compared to the soaring rates observed a year ago. Readings from the consumer price index also indicate a deceleration in the rise of inflation, while consumer expectations are aligning with longer-term trends.

The Federal Reserve closely monitors the PCE as it accounts for changes in consumer behavior and offers a different perspective on price trends compared to the more widely cited CPI.

In conjunction with the inflation figures, the Commerce Department reported that personal income rose 0.3%, while spending increased by 0.5%. Income was slightly below expectations, but spending was in line with projections.

It’s worth noting that this report comes just two days after the Federal Reserve’s announcement of a quarter percentage point interest rate increase, which marked the 11th hike since March 2022 and the first since skipping the June meeting. The central bank’s key borrowing rate now stands at a target range of 5.25%-5.5%, its highest level in over 22 years.

Federal Reserve Chairman Jerome Powell emphasized that future decisions regarding rate changes would be data-driven rather than following a predetermined policy course. Despite the recent positive trends in inflation, central bank officials believe that inflation remains relatively high and will monitor several months of positive trends before considering any change in direction.

Additionally, another indicator closely followed by the Fed, the employment cost index, showed that compensation costs increased by a seasonally adjusted 1% on an annual basis during the second quarter, slightly below the estimated 1.1%.

The June PCE will likely embolden some analysts who believed that July’s FOMC signaled the last rate hike of 2023.

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