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The Fed's Preferred Inflation Indicator: What to Expect This Friday
This Friday, the Commerce Department will release the personal consumption expenditures (PCE) price index, the Federal Reserve's primary gauge for measuring inflation. The PCE index provides a comprehensive view of consumer expenditures across a wide range of goods and services, reflecting spending habits. This report is crucial as it will influence the Fed's decision on interest rates for September.
Expectations and Impact on Interest Rates
The Dow Jones consensus predicts minimal changes in recent trends, forecasting a 0.2% rise in both headline and core prices, with annual increases expected at 2.5% and 2.7%, respectively. If the actual figures align closely with these projections, it is unlikely that Federal Reserve officials will reconsider their anticipated interest rate cut during the policy meeting scheduled for September 17-18.
Beth Bov, chief at U. Bank, noted, "This will simply add another piece of evidence confirming that the Fed is observing sustainable inflation at a steady rate." She emphasized that any minor increases are likely just base effects that won’t alter the Fed's perspective.
Focus on the Labor Market
Despite a more optimistic tone in recent statements, Fed officials are not yet proclaiming victory over inflation. The central bank aims for an annual inflation rate of 2%. Since February 2022, the PCE readings have not dipped below this target. Last week, Fed Chair Jerome Powell expressed growing confidence that inflation is moving back towards the target, although he voiced concerns regarding the slowing labor market. It seems the Fed is now shifting its focus from combating inflation to bolstering employment.
Powell stated, "The risks of inflation on the upside have lessened, while the risks to employment on the downside have increased." This perspective suggests that policymakers are prioritizing the prevention of a downturn in the labor market and a broader economic slowdown. Consequently, there may be less emphasis on the PCE data released on Friday and more attention on the nonfarm payroll report for August, due on September 6.
Additional Data Releases
In addition to the inflation figures released on Friday, there will also be data on personal income for July, expected to rise by 0.2%, alongside consumer spending, projected to increase by 0.5%.
Original Article: https://www.cnbc.com/2024/08/29/the-feds-preferred-inflation-indicator-is-out-friday-what-to-expect.html
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