In recent data, it has been shown that price hikes are slowing down, indicating that inflation is beginning to stabilize. The Personal Consumption Expenditures price index, used by the Federal Reserve as a gauge for its 2% target, slowed to 2.5% for the 12 months ending in June. This was in line with economist projections and led to a positive response from Wall Street, with the Dow surging by close to 700 points. Additionally, on a monthly basis, the price index saw a 0.1% increase, staying in line with expectations.
The second quarter of the US economy was marked by a significant decrease in inflation, dispelling fears of a reacceleration. Economists and analysts are viewing this data positively, suggesting that the Federal Reserve may be preparing for rate cuts. The Fed is expected to hold rates steady at its upcoming July meeting, with potential cuts beginning in September. The focus is on achieving a soft landing to rein in high inflation without causing a recession.
Energy prices and goods prices dropped in June, contributing to a decrease in overall inflation. Food and services inflation also remained relatively low, with the core PCE index rising by 0.2% for the month. The Commerce Department’s Personal Income and Outlays report revealed that household finances are holding up well, with increased spending on services and experiences such as housing and travel.
Despite strong consumer spending in June, a slight dip in the personal saving rate indicates that savings are shrinking. The momentum for consumer spending at the beginning of the third quarter is expected to support overall economic activity. However, the pace of spending may slow down due to employment growth cooling and savings diminishing. The Fed is anticipated to implement quarter-point cuts in September and December to support economic growth.
Monthly employment gains remain strong but have cooled compared to previous years, with the US economy adding 206,000 jobs in June. The unemployment rate has also risen for the third consecutive month to 4.1%, the highest since November 2021. As labor market data is released next week, economists are closely monitoring job gains and unemployment rates to assess the health of employment activity. While signs of a rapid slowdown have not been significant, there is a possibility of a gradual cooling in the labor market. The Fed will be closely evaluating jobs data to determine potential rate cuts in the coming months.
