U.S. Personal Consumption Expenditures (PCE) Report

(Reuters) – The personal consumption expenditures (PCE) price index rose 0.2% last month after an unrevised 0.1% gain in June, as reported by the Commerce Department on Friday, matching economists’ forecasts.

The data is unlikely to divert the Federal Reserve, which tracks the PCE price measures as an inflation gauge for monetary policy, from lowering interest rates at least 25 basis points in September.

In the 12 months through July, the PCE price index increased 2.5%, matching June’s gain and beating the 2.6% increase expected by economists polled by Reuters. Excluding the volatile food and energy components, the PCE price index rose 0.2% last month, matching June’s increase.

Market Reaction:

• Stocks: U.S. stock futures were up 0.35%, spinning in a narrow range, indicating a steady opening on Wall Street.
• Bonds: The U.S. Treasury 10-year yield ticked up to 4.877% while the two-year yield rose to 4.927%.
• Forex: The dollar index firmed 0.15%, while the euro turned 0.09% easier.

Comments:

OLU SONOLA, Head of U.S. Economic Research, Fitch Ratings

“This is a double dose of good news on inflation and economic growth. Inflation prints are slowly but surely becoming boring again as this report continues the recent streak of benign core and headline inflation prints. Consumer spending continues to exceed all expectations, indicating the economy remains in solid shape with strong above-trend growth.

The question now is how much of a slowdown in consumer spending we will see in the remaining months of the year as the labor market continues to cool. A 25 basis point interest rate cut is pretty much set in stone for September, but the Fed will hope next week’s jobs report doesn’t add pressure for a 50 basis point cut.”

BRIAN JACOBSEN, Chief Economist, Annex Wealth Management, Menomonee Falls, Wisconsin

“Income and spending were a bit better than expected while inflation was in line with expectations. This reinforces the idea that the Fed has stuck the landing. However, as Yogi Berra said, ‘It ain’t over until it’s over.’ This is July data, and the Fed hasn’t cut rates yet. We could see some initial downward pressure on growth as savers lose a bit of interest income, and borrowers may hesitate to refinance until cuts are more meaningful. Why refinance after a 25 bps cut when you might wait six months for a full percentage point reduction? Growth often slows before it reaccelerates post-cut.”

SAM STOVALL, Chief Investment Strategist, CFRA Research, Allentown, PA

”The report was pretty much right on target as analysts had expected. The equity and fixed-income markets have not responded; it was a non-event. It confirms what Fed Chair Powell stated, focusing on employment trends because inflation is expected to continue trending towards the 2% target.”

CAMERON DAWSON, Chief Investment Officer, NewEdge Wealth, New York

“Investors see another sign of soft landing with disinflation or at least no acceleration of inflation. Personal income is growing healthily without compromising growth.

As long as growth stays resilient, it suggests the Fed doesn’t need to react urgently, providing room for rate adjustments. It’s a Goldilocks report threading the needle perfectly for the market.”

PETER CARDILLO, Chief Market Economist, Spartan Capital Securities, New York

“These are good numbers indicating that inflation has peaked and is continuing to decline. Personal income growth is moderate, and consumption is increasing, suggesting minimal recession prospects in the first six months of 2025.

We are likely to see a rate cut; whether it’s 25 or 50 bps will depend on next week’s employment data. If data shows fewer than 100,000 payrolls, it could push for a 50-basis-point cut. I foresee three rate cuts with a possibility of 0.5% in September based on employment data, otherwise, it would be 25 bps in September and 50 bps in December.”