August US PCE inflation cools to within reach of Fed target

(Reuters) – The personal consumption expenditures (PCE) price index rose 0.1% in August after an unrevised 0.2% gain in July the Commerce Department reported on Friday. Economists had forecast PCE inflation advancing 0.1%. In the 12 months through August, the PCE price index increased 2.2% after rising 2.5% in July.

The core PCE price index excluding the volatile food and energy components increased 0.1% after an unrevised 0.2% rise in July. In the 12 months through August, core inflation advanced 2.7% after climbing 2.6% in July. The U.S. central bank tracks the PCE price measures for its 2% inflation target.

MARKET REACTION:

STOCKS: U.S. stock futures firmed 0.16% pointing to a steady Wall Street open

BONDS: The U.S. Treasury 10-year yield eased to 3.762% and the two-year yield fell to 3.584%

FOREX: The dollar index fell 0.4%

COMMENTS:

QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NC (emailed note)

“The August PCE report supports the Fed’s decision to go big on September 18, although the core year-over-year at 2.7% suggests that another round of 50 basis points needs to come under careful scrutiny unless the labor market suggests weakness.

“Although the Fed cannot declare complete victory on inflation, today’s report – with 2.2% on the year-over- year headline – underscores that overall inflation continues to move decisively in the right direction.

“The equity futures across the board are applauding the numbers as the ten-year Treasury yield inches lower.”

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VA (emailed note)

“Inflation is no longer the story in the PCE data for the Fed. It’s now all about spending and keeping the economy strong. If you were second guessing the Fed going .50 in September, you aren’t now. These data suggest another .50 in November is likely.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

“Powell can breathe a little sigh of relief. After pushing for a 50 bps cut instead of a more conventional 25 bps cut the personal income and spending data so far vindicates that decision. Core inflation was a little less than expected, as were income and spending numbers. Personal interest income has fallen two months in a row and will likely continue to fall as the Fed cuts rates. Interest expense won’t fall as fast and that can keep squeezing consumption. Real disposable income has been barely treading water. Some economic waves are likely to cause some gasping for air.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

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“Basically, these numbers confirm two things. One, inflation continues to move lower and if you look at year-to-year headline at 2.2%, we’re not far from the Fed’s 2% target.”

“Personal income and spending were cooler than expected and that’s another indication that the economy is slowing.”

“That’s good news for the markets in a way, and it basically indicates that the Fed is likely to continue to cut, perhaps by another 50 basis points by year-end.”

“The reason (index futures’ muted reactions) is it’s been a very strong week and of course, you know personal income and spending suggest that the economy is weakening so that you know might be holding traders back.”

(Compiled by the Global Finance & Markets Breaking News team)