Friday's personal consumption expenditure (PCE) price index report could validate the recent decision to cut interest rates and foreshadow the size of future cuts.
PCE Report: The monthly PCE report is scheduled for release at 8:30 a.m. ET on Friday. The data will be closely watched by investors and the Federal Reserve.
The PCE is the Fed's preferred inflation gauge and the latest inflation trends report from August could help validate the recent rate cut and be used by economists and market analysts to predict whether the Fed will cut rates. interest another 25 or 50 basis points in November.
Market experts predict that headline PCE inflation will fall from 2.5% in July to 2.3% in August. This would mark the lowest inflation rate since February 2021.
The headline figure is expected to rise 0.1% month-on-month, marking a slowdown from last month's 0.2% increase.
Core PCE inflation, which excludes food and energy, is expected to rise from 2.6% year-on-year in July to 2.7% in August.
Also Read: Interest Rates in Free Fall: What It Means for Mortgages, Credit Cards, and Your Wallet as the Federal Reserve Swings into Action for the First Time in 4 Years
What the experts say: As the first PCE report since the Federal Reserve cut interest rates, the report could be important in showing whether the decision was correct.
“Prime and core personal consumption expenditure price indices (the Fed's preferred inflation gauges) likely rose modestly in August, validating the Fed's rate cuts last week.” Comerica Bank chief economist Bill Adams saying.
Adams predicts that the report will show higher average hourly earnings and an increase in personal income, and that personal spending will likely increase at a slower rate.
Chief Global Strategist at Freedom Capital Markets jay woods highlighted the importance of Friday's PCE report after the recent rate cut.
“This figure will not be affected by last week's rate cut, but will be watched like a hawk by those who want to criticize the Federal Reserve's latest actions,” Woods said in a weekly statement. fact sheet.
Woods said an upside surprise could justify the 50 basis point decision, while a lower figure could make experts wonder why a 50 basis point cut was made.
“In any case, the impact should be minimal on the market.”
SPY Price Action: He SPDR S&P 500 ETF Trust SPY hit new 52-week highs of $574.71 on Thursday ahead of the PCE report. At the time of writing, SPY is trading at $571.58.
The SPY traded higher after the June and July PCE reports and will be watched closely to see how the market reacts to the latest report.
The SPDR S&P 500 ETF Trust is up 20.8% so far in 2024.
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