Fed's Preferred Inflation Gauge Falls Short Of Expectations In July, Personal Spending Accelerates

After three consecutive months of decline, the Federal Reserve’s preferred measure of inflation held steady in July, although it came in slightly below market forecasts.

The Personal Consumption Expenditures (PCE) Price Index increased by 2.5% in July 2024 compared to the same period last year, according to government data released Friday.

Alongside this inflation data, both personal spending and spending accelerated on a monthly basis, highlighting strong financial health among U.S. households.

Personal Income And Outlays, July 2024: Key Highlights

• Annual PCE Inflation: The PCE price index remained unchanged at 2.5% year-over-year in July, matching June’s figure and falling just short of the anticipated 2.6%, as tracked by TradingEconomics.
• Monthly PCE Inflation: The consumer basket rose by 0.2% from the previous month, an increase from June’s 0.1% pace, aligning with market expectations.
• Core PCE Inflation: Excluding volatile food and energy prices, the core PCE price index grew by 2.6% year-over-year in July, the same as in June, but slightly below the forecasted 2.7%.
• Monthly Core PCE Inflation: The core PCE price index also rose by 0.2% on a monthly basis, consistent with both market expectations and the previous pace.
• Personal Spending: Personal spending increased by 0.5% in July compared to the previous month, significantly outpacing June’s 0.2% rise and matching expectations of a 0.5% increase.
• Personal Income: Personal income grew by $75.1 billion, or 0.3% month-over-month in July, up by 0.1 percentage points compared to both the previous month's growth and market expectations.

Market Reactions

The lower-than-expected July PCE report further strengthens the already high expectations that the Federal Reserve will cut interest rates in September.

Yet, the stronger-than-expected surge in both personal spending and personal income indicate robust consumer health, supporting ongoing economic growth and thus trimming hopes for large and aggressive rate cuts.

Market-implied probabilities on a 50-basis-point rate in September eased from 32% to 30% as per CME FedWatch.

The U.S dollar index, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rose 0.2% after the release.

Futures on major U.S. equity indices soared in the premarket trading Friday. Contracts on the S&P 500 were 0.4% higher, while those on the tech-heavy Nasdaq 100 rose 0.7%.

On Thursday, the Dow Jones index, as monitored through the SPDR Dow Jones Industrial Average ETF DIA, hit fresh record highs.

Read Next:

• Nvidia Rebounds In Premarket After Thursday’s 6%+ Drop: What’s Going On?

Photo via Shutterstock.