News
US inflation rises moderately in June
NEW YORK (Reuters) – U.S. prices rose moderately in June, underscoring an improving inflation environment that potentially positions the Federal Reserve to start cutting interest rates in September.
The personal consumption expenditures (PCE) price index rose 0.1% last month after being unchanged in May, the Commerce Department’s Bureau of Economic Analysis reported Friday. In the 12 months through June, the PCE price index rose 2.5% after rising 2.6% in May.
Excluding the volatile food and energy components, the PCE price index rose 0.2% last month. That followed an unrevised 0.1% gain in May.
MARKET REACTION:
STOCKS: S&P 500 E-minis trim gains modestly after data, latest up 0.70%
BONDS: The yield on the benchmark U.S. 10-year note was slightly lower, down about 2 basis points to about 4.22%
FOREX: The dollar index fell slightly to 104.28 from 104.41 previously
COMMENTS:
STAN SHIPLEY, MANAGING DIRECTOR, FIXED INCOME STRATEGIST, EVERCORE ISI, NEW YORK
“PCE is a little firmer than expected. It was weak in the goods sector, especially in motor vehicle spending, because we know what happened with the hot weather. That should pick up in July and August. Those are actually good readings for the headline and core. Going forward in the next few months, they’ll be higher than that.”
“Inflation readings are quite contained overall. As for the Fed, they are looking at the longer term, like five years and 10 years, and yes, the Fed will be successful in containing inflation at its 2% target. The Fed will probably keep inflation on hold next week. It will be a surprise if they cut next week. They will probably say they may move in September. The market has some chances for a 50 basis point cut in September and we think that is overly dovish.”
BRET KENWELL, U.S. INVESTMENT ANALYST AT ETORO, PETOSKEY, MICHIGAN
“The June PCE report was in line with economists’ expectations, while the year-over-year core PCE came in slightly above estimates. While the year-over-year core PCE came in slightly above expectations, there was nothing in the report to suggest an unexpected reacceleration in inflation. Coupled with a lower-than-expected CPI report earlier this month and a recent trend of lower inflation numbers, this should give the Fed the green light to cut rates later this quarter.”
“All eyes will be on Chair Powell at next week’s Fed meeting, with the hope and expectation that he will set the stage for a rate cut in September. The Fed has been very transparent in recent years, telegraphing its actions well in advance and adding more certainty to the mix, and markets like certainty.”
The story continues
VAIL HARTMAN, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK
“I think it was a classic relief rally… the angst from the upside surprise that was instilled based on yesterday’s quarterly data was to some extent overpriced, so that’s why I think we had the relief rally and it actually brought the three-month annualized rate (for core PCE) down to a low of 2.3% year-to-date, so the latest trend is building on the market’s confidence that we’re on a path that would take us to 2% over the long term. So I think this is just another month of good inflation data from the Fed’s preferred inflation measure.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WISCONSIN
“Everyone is waiting to find out if the Fed is going to get confident enough to cut. If this doesn’t make the Fed confident enough, nothing will.”
“The economy is slowing down and if they don’t cut, it could come to a screeching halt. They have some time because there’s certainly still some economic momentum, but that economic momentum is fading fast. I think they’ll cut in September. They might cut on Wednesday, but I don’t think they’ll do that just because it looks like they might want to get a little bit more data, or at least accelerate a cut. So they might not want to just go from a hold to a cut without first telegraphing that a cut is coming.”
“If this was under Greenspan or Bernanke, they probably would have cut it, but Janet Yellen really set the precedent for trying to really improve that forward guidance. And Powell took that to the extreme.”
RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW JERSEY
“Personal income and spending were revised up to 0.4%, which is a solid improvement in income and spending with milder inflation. So you have a very good report here that further reinforces the soft landing narrative.”
“After a tough week, on a summer Friday, markets (today) have a chance to bounce back.”
CHRIS LARKIN, MANAGING DIRECTOR, HEAD OF TRADING AND INVESTMENT, MORGAN STANLEY E*TRADE, NEW YORK
“Overall, it was a good week for the Fed. The economy appears to be on solid ground, and PCE inflation remained essentially flat. But a rate cut next week remains a long shot. And while there is plenty of time for the economic outlook to change before the September FOMC meeting, the numbers have been trending in the Fed’s direction.”
(Compiled by the Global Finance & Markets Breaking News team)