Invesco Global Market Strategist Brian Levitt noted that inflation has returned to a more comfortable range during an appearance on Barrons Roundtable.
The Commerce Department revealed on Friday that the personal consumption expenditures (PCE) price index, a key measure monitored by Federal Reserve officials, increased by 0.1% in August from the previous month and 2.2% year-over-year. The annual increase was slightly below the expectations of economists surveyed by LSEG.
Core PCE, which excludes the volatile categories of food and energy, also rose 0.1% for the month and 2.7% from the same period last year, aligning smoothly with forecasts and showing negligible change from July.
The Federal Reserve places significant emphasis on the PCE headline figure in its efforts to steer inflation back to a 2% target, although it regards core PCE as a superior benchmark for assessing inflation trends. Current data from both measures suggest a continuing cooling of inflation.
Additionally, the PCE data indicated that prices for goods declined by 0.2% month-over-month while service prices saw a 0.2% increase in August. Food prices edged up by 0.1% and energy prices fell by 0.8% compared to the previous month. On an annual basis, goods prices dropped 0.9% while service prices climbed 3.7%. Food prices increased by 1.1%, and energy prices decreased by 5% year-over-year.
Chris Larkin, Managing Director of Trading and Investing at E*Trade from Morgan Stanley, remarked, “All quiet on the inflation front,” praising the economic data’s alignment within a favorable range. He noted that while economic growth might be decelerating, there is no evidence of a sharp decline.
The report also highlighted wage and salary growth, which increased by 0.5% in August, an acceleration from the 0.3% rise observed in July but notably slower than the 1% monthly increment recorded in January. Furthermore, the personal savings rate as a share of disposable income decreased slightly to 4.8% in August from 4.9% in July and 5.5% in January.
As investors scrutinize the Fed’s future interest rate actions, it is noteworthy that last week the Federal Reserve implemented its first rate cut in four years, reducing the federal funds rate by 50 basis points, setting it within a new target range of 4.75% to 5%.
Federal Reserve Chair Jerome Powell, during a press conference, clarified that the significant rate cut should not be interpreted as a sign that the Fed had lagged in its response, but rather as a timely move indicating their commitment. Powell reassured that future interest rate decisions would be made on a meeting-by-meeting basis, parsing economic data as it arrives.
Market sentiment currently suggests a leaning towards another 50 basis point rate cut at the Fed’s upcoming policy meeting in November, with a 53.4% likelihood as assessed by the CME FedWatch tool. The Federal Reserve’s next policy meeting is set to commence on November 6, followed by an interest rate decision announcement on November 7.