The U.S. Commerce Department reported on Friday that inflation in August was close to the Federal Reserve’s target, paving the way for future interest rate cuts.
this personal consumption expenditures price indexThe Federal Reserve’s key measure of the cost of goods and services in the U.S. economy rose 0.1% this month, bringing the 12-month inflation rate to 2.2%, down from 2.5% in July and the lowest level since February 2021.
Economists surveyed by Dow Jones had expected personal consumption expenditures across all items to increase 0.1% this month and 2.3% annually.
Excluding food and energy, core PCE grew by 0.1% in August, an annual increase of 2.7%, and the 12-month data was 0.1 percentage point higher than July. Fed officials tend to focus more on core businesses to better gauge long-term trends. Core forecasts are 0.2% and 2.7% respectively.
“Everything is calm on the inflation front,” said Chris Larkin, managing director of trading and investing at Morgan Stanley E-Trade. “Add today’s PCE price index to the top-line On the list of economic data. Inflation continues to remain subdued and while economic growth may be slowing, there is no sign that it is falling off a cliff.”
While inflation data showed continued progress, personal spending and income data both showed signs of progress.
Personal income increased by 0.2% this month, and expenditure increased by 0.2%. Growth is expected to be 0.4% and 0.3% respectively.
Stock futures rose after the report, while bond yields were negative.
The data comes more than a week after the Federal Reserve cut its benchmark overnight borrowing rate by half a percentage point to a target range of 4.75%-5%.
Progress in August came despite continued pressure on housing-related costs, which rose 0.5% for the month, the largest increase since January. Service prices overall increased by 0.2%, while commodity prices overall decreased by 0.2%.
It was the first time the Fed had eased policy since the early days of the pandemic in March 2020, an unusually large move for a central bank that likes to adjust interest rates in quarter-percentage increments.
In recent days, Fed officials have shifted their focus from fighting inflation to emphasizing support for a labor market that has shown some signs of weakness. At last week’s meeting, policymakers said another half-percentage point cut could be possible this year and then a full percentage point in 2025, though markets expect a more aggressive path.
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