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The Federal Reserve’s preferred measure of inflation held steady at 2.5 percent in the year to July, data released Friday showed, paving the way for the U.S. central bank to start cutting interest rates next month.
The personal consumption expenditures price index compared with economists’ expectations of a 2.6 percent increase and the 2.5 percent increase in June. The Fed’s target for the core PCE index is 2 percent a year.
“Core PCE” — which excludes volatile food and energy costs — remained at 2.6 percent, below the forecast of 2.7 percent.
The figures from the Commerce Department come after Fed Chairman Jay Powell said last week that “the time has come” to begin cutting interest rates as inflation eases and the labor market slows.
Powell’s comments at the annual Jackson Hole conference made it certain that the central bank would cut its key interest rate from its current range of 5.25 to 5.5 percent at its next meeting in September.
Much of the debate among Fed watchers has now turned to whether the central bank will cut by 0.25 or 0.5 percentage points and how large the cuts will be for the rest of the year.
U.S. government bond prices were little changed after the data was released. The yield on the two-year Treasury note, which rises when prices fall, was up 0.03 percentage point on the day at 3.93 percent.
Stock futures showed the S&P 500 was expected to rise 0.5 percent from the time just before the announcement.
Gregory Daco, chief economist at EY, said the report “does not indicate that inflation is rising in any way,” adding that the report “underscores as expected that the Fed has the option” to start lowering interest rates.
Data will be the driving force for the Biden administration and Vice President Kamala Harris presidential campaignbecause it provides further evidence that inflationary is decreasing.
It would also help blunt attacks on Harris by Republican rival Donald Trump on the cost of living, which remains a key concern for voters.
On Thursday night during her first time big interview Since joining the campaign, Harris has told CNN she is “very proud of the work we’ve done to get inflation below 3 percent.”
But she added that “there is still much work to be done.” reduce costs for middle and working class households.
The bigger economic concern for Harris now is the slowdown. labor marketand whether that will affect voter sentiment ahead of the November election.
The release of August jobs and unemployment figures next week could be pivotal, after July data showed an unexpected decline.
However, Commerce Department data on Friday showed no signs of a slowdown in consumer spending. Personal consumption expenditures rose 0.5 percent in July, compared with a 0.3 percent increase in June.
Personal income rose 0.3 percent from 0.2 percent the previous month.
