At Extreme Investor Network, we bring you the latest updates on the economy to help you make informed investment decisions. In July, inflation inched up, signaling a potential interest rate reduction by the Federal Reserve – the first in over four years.
According to the Commerce Department, the personal consumption expenditures price index rose by 0.2% on the month and 2.5% from the same period last year, meeting the Dow Jones consensus estimates. The core PCE, excluding food and energy prices, also increased by 0.2% for the month and 2.6% from a year ago.
Fed officials typically focus on the core PCE reading as it provides a better indication of long-term trends. Core inflation remained steady at 2.7% on a 12-month basis. Interestingly, while overall inflation remained stable, shelter prices continued to rise, increasing by 0.4% in July.
In terms of personal income and spending, the Bureau of Economic Analysis reported a 0.3% increase in personal income and a 0.5% rise in consumer spending. Despite the solid spending, the personal savings rate fell to 2.9%, the lowest since June 2022.
Looking at prices, goods prices saw a slight decrease, while services increased by 0.2%. On a 12-month basis, goods prices remained relatively steady, while services saw a significant 3.7% jump. Food prices rose by 1.4% and energy prices accelerated by 1.9%.
The markets reacted calmly to this news, with equity futures indicating a slightly higher open on Wall Street and Treasury yields also rising. Chief economist Joseph Brusuelas noted that the data suggests price stability across the US economy, supporting growth and hiring.
With a 100% chance of a rate cut in September, the focus now shifts to whether the Fed will opt for a quarter-point or half-point reduction. Market pricing currently leans towards a quarter-point cut, with the probability of a half-point decrease at 30.5%.
As the Fed gears up to balance inflation and labor market support, all eyes are on the upcoming nonfarm payrolls report for August, expected to show an increase of around 175,000 jobs. Stay tuned for more updates on how these factors could impact your investment strategy at Extreme Investor Network.