The Fed’s favorite PCE inflation index for June was released, showing a clever phenomenon: both rising and falling, which is good for U.S. stocks and creates good conditions for interest rate cuts. HH?
First, the overall PCE index in the United States fell to 2.5% this month from 2.6% last month, showing that inflation is still on a downward trend, which is a positive signal for the Federal Reserve to continue to cut interest rates.
However, its decline was slightly smaller than market expectations of 2.4%, suggesting that the U.S. economy remains strong.
Considering that the U.S. second-quarter GDP growth exceeded expectations yesterday, this is a big plus for U.S. stocks.
The market had been worried that the U.S. economy might fall into recession, but good economic and spending data showed that the U.S. economy remains strong, which means that the risk of recession is reducing. The three-month smoothed PCE index in the United States has fallen to 2.3%, close to the 2% target set by the Federal Reserve, so an interest rate cut in September is almost certain.
However, the likelihood of a rate cut in July has decreased significantly, with markets expecting the Fed to be unlikely to cut interest rates at the end of July.
But this does not mean that the interest rate cut meeting in July will not be interesting. Instead, I think the upcoming meeting will be the most important of the year, as markets are clearly divided on the Fed's future rate cuts.
Since the halt to interest rate increases last July, the market reaction has been muted, and a similar situation may emerge in July this year.
The market has yet to have clear expectations for the Fed's response. Therefore, at the Fed’s interest rate meeting on July 31, we will see more information revealing the Fed’s stance on the wave of interest rate cuts.