June U.S. PCE Inflation Data: Core Inflation Matches Estimates, Market Anticipates Fed Rate Hold and Cuts
In June, the Personal Consumption Expenditures (PCE) inflation rate was reported at 2.6%, surpassing the expected 2.5%. At the same time, Core PCE inflation, which excludes volatile food and energy prices, fell to 2.5%, meeting the anticipated rate. Despite this, PCE inflation remains flat, and the Producer Price Index (PPI) inflation is on the rise, signaling that inflationary pressures are still present.
Overall, inflation continues to hover in the range of 2.5% to 3.0%, which makes reaching the Federal Reserve’s target of 2.0% increasingly challenging. Furthermore, premature rate cuts could potentially exacerbate the problem, making it even harder to bring inflation down to the Fed’s desired level.
Here’s a summary of the June U.S. PCE inflation data:
PCE Price Index:
  – Year-over-Year (YoY): 2.5%, matching estimates and down from 2.6% previously.
  – Month-over-Month (MoM): 0.1%, aligning with estimates and up from 0.0% previously.
Core PCE Price Index:
  – YoY: 2.6%, matching the previous figure and slightly above the 2.5% estimate.
  – MoM: 0.2%, in line with estimates and up from 0.1% previously.
Personal Income: Increased by 0.2%, below the 0.4% estimate.
Personal Spending: Rose by 0.3%, meeting estimates.
Market Reaction: U.S. short-term interest-rate futures rose following the data. Traders expect the Federal Reserve to hold rates in July and potentially start cutting rates in September.
Futures contracts linked to the Federal Reserve’s policy rate saw a modest increase on Friday following data that indicated inflation was slightly stronger than anticipated last month. This reflects ongoing confidence in the likelihood of a series of interest rate cuts beginning in September. Traders still believe the Fed will maintain its current rates at next week’s meeting, with expectations for an initial rate cut in the subsequent meeting and two more cuts by the end of the year.
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