On August 14, 2024, a customer shopped at a supermarket in Arlington, Virginia.
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Federal Reserve officials will get an update on their favorite inflation gauge on Friday, a data snapshot that could influence September’s interest rate decision, although policymakers appear to be turning their attention elsewhere these days.
The U.S. Department of Commerce will release its personal consumption expenditures price indexa broad measure of what consumers pay for various goods and services and their spending preferences.
While the Fed uses a comprehensive suite of indicators to measure inflation, the PCE index is its preferred data point and sole forecasting tool when its members issue their quarterly forecasts. Policymakers pay special attention to the core personal consumption expenditures (PCE) measure, which excludes food and energy, when making interest rate decisions.
The Fed prefers personal consumption expenditures to the Labor Department’s Consumer Price Index because it takes into account changes in consumer behavior such as substitution purchases and has a broader scope.
For July’s data, Dow Jones sees little change in recent trends – headline and core prices rising 0.2% monthly, for annual gains of 2.5% and 2.7% respectively. At a core level, the 12-month forecast actually showed a slight increase from June, while all project indicators were the same.
If the data is broadly in line with forecasts, they should not prevent Fed officials from following the policy. The much-anticipated interest rate cut at the policy conference on September 17-18.
“To me, this would be another piece of evidence that the Fed is seeing sustainable growth at a sustainable pace,” said Beth Ann Bovino, chief economist at Bank of America. Inflated data. Any slight increase “is really just a fundamental effect kind of thing and doesn’t change the Fed’s view.”
Fed officials have yet to declare victory over inflation, although recent statements suggest a more optimistic outlook. The central bank’s annual inflation target is 2%.
Although respective PCE readings The Fed chairman said it has not been below that level since February 2022 Jerome Powell “I have increased confidence that inflation is returning to target,” he said last week. but Powell also expressed some reservations The labor market is slowing, and the Fed now appears to be less focused on being an inflation fighter and more focused on supporting employment conditions.
“Upside risks to inflation have weakened. Downside risks to employment have increased,” Powell said.
This view is thought to indicate that policymakers More attention will be paid to preventing labor market reversals and a broader economic slowdown. In turn, this could mean less focus on data such as Friday’s personal consumption expenditures data and more focus on the August non-farm payrolls report on September 6.
“The focus of the Fed will be on employment,” Bovino said. “They seem to be more focused on whether the employment side is getting a little softer. I think that’s the focus of their monetary policy.”
In addition to Friday’s inflation data, attention will also be paid to personal income (expected to rise 0.2%) and consumer spending (expected to rise 0.5%) in July.
