top of page
  • Staff

June Inflation Data Signals Slowdown: Markets React Positively as Fed Monitors for Consistent Trends

According to data released last Friday, indications of inflation slowing down further were visible in June. This data is particularly significant for the Federal Reserve.

The Commerce Department reported that the personal consumption expenditures (PCE) price index, excluding food and energy, saw a modest rise of 0.2% compared to the previous month, which matched the Dow Jones projection.

The core PCE, otherwise, noted an annual increase of 4.1%, slightly below the forecasted 4.2%. The yearly rate reached its lowest since September 2021, marking a decrease from May's pace of 4.6%.

Including food and energy costs, headline PCE inflation also saw a monthly increase of 0.2% and an annual rise of 3%. The yearly rate, which is the lowest since March 2021, decreased from 3.8% in May.

Goods prices witnessed a decrease of 0.1% for the month, while services experienced a 0.3% increase. Food prices also dipped 0.1%, while energy prices rose 0.6%.

Stock market futures trended upwards while Treasury yields declined, reflecting a positive market response to the report.

George Mateyo, Chief Investment Officer at Key Private Bank, suggested that the economic data reinforces the current market perception that inflation is easing and economic growth is sustaining, which is an encouraging situation for risk assets. Mateyo further noted that this could mean a potential break for the Federal Reserve from future interest rate increases as the threat of inflation recedes.

The data further validates other recent information which shows prices starting to stabilise compared to the inflation peak of the previous year. Indicators like the consumer price index reveal a decelerating inflation rate, and consumer expectations are realigning with long-term patterns.

The PCE index is closely monitored by Fed officials as it factors in changes in consumer behaviour, thus offering an alternate perspective on price trends compared to the commonly referenced CPI.

In addition to the inflation data, the Commerce Department reported a 0.3% increase in personal income and a 0.5% rise in spending. While income was slightly under projections, spending was as expected.

This report was published two days after the Fed announced a 0.25% increase in the interest rate, the 11th rise since March 2022 and the first after the June meeting was bypassed. This pushed the central bank's primary lending rate to a target range of 5.25%-5.5%, the highest in over 22 years.

Despite the recent positive trends, the central bank officials still view the inflation level as too high and wish to see consistent data over several months before changing direction. They have stated future policy decisions will be influenced by incoming data rather than a predetermined policy route.

A separate index closely monitored by the Fed indicated that the compensation costs rose by a seasonally adjusted 1% annually in the second quarter. The reading for the employment cost index was slightly under the expected 1.1%.


Commenting has been turned off.
bottom of page