On Friday, the Federal Reserve's favorite inflation measure showed a modest rise in June and consumer spending remained healthy, an encouraging sign for officials looking to cool inflation without derailing the economy and bolstering expectations the Fed will start cutting interest rates in September.

The year-on-year growth rate of the PCE price index in June fell from 2.6% in the previous month to 2.5%, and the month-on-month growth rate rebounded slightly to 0.1%, both in line with expectations. In terms of core indicators, the annual rate of the PCE price index in June was 2.6%, higher than the expected 2.5%, and consistent with the previous value. The monthly rate of the core PCE price index in the United States in June was 0.2%, also higher than the expected 0.1%, and the same as last month. The monthly rate of personal spending in the United States in June was 0.3%, in line with expectations, and the previous value was revised up from 0.2% to 0.4%.

U.S. short-term interest rate futures rose slightly after the release of inflation data. Traders expect the Federal Reserve to keep interest rates unchanged in July and start cutting interest rates in September. The U.S. dollar index fell 20 points in the short term. Spot gold once approached its intraday high.

Overall, modest price increases in June underscored an improving inflation environment that could help Federal Reserve officials who meet next week to gain confidence that inflation is on track toward their 2% target and prepare for interest rate cuts starting in September.

Analyst Cameron Crise said that the US PCE price index was roughly in line with expectations, although as mentioned earlier, after some revisions, the year-on-year change in the core data was slightly higher than expected. Given the market's consensus forecast, the new level of the core index was also slightly higher than expected. The core service spending data excluding housing was not as mild as the corresponding data in the CPI report, rising 0.19% month-on-month. The corresponding data for the previous month was revised up from 0.1% to 0.18%.

He noted that the data was not enough to prevent the Fed from cutting rates in September, but there was no sign that the Fed needed to cut rates earlier or by more than 25 basis points. The bond market may be reacting to weaker income/spending data as inflation data did not seem strong enough to support any rebound.

Meanwhile, consumer spending rose a modest 0.3% in June, helping the U.S. economy continue to expand at an above-average pace. Spending in May and April were also revised upward to show healthier levels of consumer spending.

Households increased spending in the April-June period after cutting back in the first three months of the year. Gross domestic product data showed consumer spending increased at an annualized rate of 2.3% in the second quarter after rising 1.5% in the first quarter.

Still, some economists question how long consumers can maintain current spending levels amid modest income gains and low savings rates, and they predict spending will slow in the coming months, contributing to weak U.S. economic growth.

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Article forwarded from: Jinshi Data