Inflation measure closely watched by the Fed rises 25 in July
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Mark Heppenstall, Chief Investment Officer at Penn Mutual Asset Management, shared his insights on various economic developments in the U.S. during his appearance on ‘Mornings with Maria.’
A closely monitored inflation indicator by the Federal Reserve saw a slight increase in July, as persistent price pressures continue to impact many Americans. The Commerce Department disclosed on Friday that the personal consumption expenditures (PCE) price index rose by 0.2% from the previous month, with an annual increase of 2.5%. These results align closely with market expectations.
When food and energy prices, known for their volatility, are excluded, core prices also increased by 0.2% month-over-month, showing a 2.6% rise compared to the same period last year. While the Fed aims for the overall PCE figure to return to 2%, officials consider core inflation data a more reliable gauge of price stability. Both core and headline statistics indicate a trend of easing inflation.
Consumers browse food products at a Costco in Colchester, Vermont, on August 16.
"Inflation appears to be under control, which is positive for the economy and for investors anticipating lower interest rates," remarked Chris Larkin, managing director of trading and investing at E*Trade.
In over 200 cities, the reality of a $1 million starter home has become commonplace.
Additional data from the report revealed a 0.5% increase in consumer spending for July, surpassing June's 0.3% rise, as Americans continue to spend despite high prices, elevated interest rates, and the restart of federal student loan repayments. Personal income also saw a 0.3% uptick last month, slightly exceeding forecasts.
This information arrives as investors seek indications that the Fed may be ready to lower interest rates. Recent comments from policymakers, including Chair Jerome Powell, suggest a willingness to adjust monetary policy.
"Now is the time for policy changes," Powell stated last week during a keynote address in Jackson Hole, Wyoming. "The trajectory is clear, and the timing and extent of rate reductions will depend on incoming data, the evolving outlook, and the balance of risks."
Market participants largely anticipate a rate cut from the Fed in September, given signs of economic slowdown and ongoing easing of inflation. Approximately 30% of traders are even factoring in a more substantial half-point rate reduction next month amid rising concerns regarding the job market.
"The continued decline in inflation may provide the Fed with the flexibility to implement more significant rate cuts in upcoming meetings, particularly if the labor market experiences a notable downturn," noted Ben Ayers, a senior economist at Nationwide.
