The Fed’s preferred inflation gauge will be released on Friday. what happens | Wilnesh News

Federal Reserve officials will get an update on their favorite inflation gauge on Friday, a data snapshot that could influence September’s interest rate decision, although policymakers appear to be turning their attention elsewhere these days.

At 8:30 a.m. ET, the Commerce Department will release the Personal Consumption Expenditures Price Index, a broad measure of what consumers pay for a variety of goods and services and their spending preferences.

While the Fed uses a comprehensive suite of indicators to measure inflation, the PCE index is its preferred data point and sole forecasting tool when its members issue their quarterly forecasts. Policymakers are particularly focused on the core personal consumption expenditures (PCE) measure, which excludes food and energy, when making interest rate decisions.

The Fed prefers personal consumption expenditures to the Labor Department’s Consumer Price Index because it takes into account changes in consumer behavior such as substitution purchases and has a broader scope.

For July’s data, Dow Jones sees little change in recent trends – headline and core prices rising 0.2% monthly, for annual increases of 2.5% and 2.7% respectively. At a core level, 12-month forecasts are actually up slightly from June, while indicators across all lines are the same.

If the data are broadly in line with forecasts, they should not prevent Fed officials from enacting a much-anticipated rate cut at their Sept. 17-18 policy meeting.

“To me, this would be another piece of evidence that the Fed is seeing sustainable growth at a sustainable pace,” said Beth Ann Bovino, chief economist at Bank of America. Inflated data. Any slight increase “is really just a fundamental effect kind of thing and doesn’t change the Fed’s view.”

Fed officials have yet to declare victory over inflation, although recent statements suggest a more optimistic outlook. The central bank’s annual inflation target is 2%.

Although respective PCE readings Inflation has not fallen below that level since February 2022, and Fed Chairman Powell said last week, “I have increased confidence that inflation is returning to target.” But Powell also expressed some reservations about the slowdown in the labor market, and the Fed now seems to be no longer acting as an inflation fighter and is more focused on supporting employment conditions.

“Upside risks to inflation have weakened. Downside risks to employment have increased,” Powell said.

This view is seen as a sign that policymakers will be more focused on preventing a labor market reversal and a broader slowdown in the economy. In turn, this could mean less focus on data such as Friday’s personal consumption expenditures data and more focus on the August non-farm payrolls report on September 6.

“The focus of the Fed will be on employment,” Bovino said. “They seem to be more focused on whether the employment side is getting a little softer. I think that’s the focus of their monetary policy.”

In addition to Friday’s inflation data, attention will also be paid to personal income (expected to rise 0.2%) and consumer spending (expected to rise 0.5%) in July.