In the news reported by Epoch Times on August 31, 2024, the core PCE price index in the United States rose by 2.5% year-on-year in July, indicating that the extent of inflation did not further expand. This sets the stage for the Federal Reserve to begin moderate rate cuts in September.
The inflation data released on Friday, August 29, supports the Fed’s ability to gradually advance its monetary policy stance. As long as the unemployment rate remains stable and Americans continue to consume, the Fed can start cutting rates slowly.
According to the data published by the U.S. Bureau of Economic Analysis on Friday, the personal consumption expenditure index in July increased by 2.5% year-on-year, while the core PCE price index (excluding volatile food and energy prices) rose by 2.6% year-on-year. Both of these indicators did not exceed previous values.
Last week, Fed Chairman Jerome Powell sent the strongest signal to date, saying, “Now is the time to relax monetary policy.” However, he also added that he is more concerned about the soft job market than inflation.
The Wall Street Journal reported that Powell’s remarks have created divergence among investors, as the Fed’s goal is to maintain price stability and full employment. Most predict a 25 basis point rate cut in September, similar to a soft landing. However, some anticipate a doubling of the rate cut, as a response to the labor market cooling faster than expected.
The FedWatch Tool from the Chicago Mercantile Exchange shows a close to 70% probability of a 25 basis point rate cut in September.
Therefore, the non-farm payroll report for August, to be released next week, will be crucial. This will be the final employment report before the September Fed meeting, expected to determine the extent of the rate cut in September.
However, detailed official data released on Friday also indicate some inflation risks. Prices in the service sector remain at historical highs (3.7%) when calculated over a 12-month period. A positive sign is that despite rising rates, Americans continue to spend.
Real disposable personal income (an estimate of personal income minus taxes adjusted for inflation) increased by 0.1% compared to the previous month, consistent with June. The increase in May was 0.3%.
Chief economist Jeffrey Roach of LPL Financial stated, “The growth in real disposable income is sufficient to provide some support to retailers in the short term as consumers can continue to spend.” He believes this reduces the likelihood of an economic recession.
Nevertheless, how long can this support the economy? Tani Fukui, a macroeconomist at MetLife Investment Management, expressed concerns over insufficient personal savings in the United States.
According to data from July, the personal savings rate represents only 2.9% of disposable income, continuing a downward trend over the past few months and reaching historically low levels.
“I am worried about how long this situation can persist,” she said.