The core personal consumption expenditures price index, which excludes volatile food and energy items, increased by 0.1% from the previous month, marking the smallest advance in six months. From a year ago, it rose 2.6%, the least since early 2021. Inflation-adjusted consumer spending rose 0.3%, and nominal incomes rose 0.5%. The lack of surprise in the PCE number is seen as a relief and welcomed by the Fed. However, the policy path is not yet certain, and a further deceleration in inflation, ideally coupled with additional evidence of labor market softening, will be necessary to pave the way for a first rate cut in September.
Key takeaways:
- Stock futures rose and bond yields fell as a cooldown in the Federal Reserve’s preferred inflation gauge reinforced bets policymakers will have room to cut rates this year.
- The so-called core personal consumption expenditures price index, which strips out volatile food and energy items, increased 0.1% from the prior month, marking the smallest advance in six months.
- Fed Bank of San Francisco President Mary Daly told CNBC that the PCE report is additional news showing that policy is working and she could see inflation above the 2% goal through 2025.
- Corporate highlights include Trump Media & Technology Group Corp. surge following Thursday’s presidential debate, Apple Inc.’s iPhone shipments in China rose 40% in May, and Microsoft Corp.’s $13 billion investment into OpenAI Inc. is set to come under added scrutiny from European Union’s antitrust watchdogs.