The flat reading in the personal consumption expenditures (PCE) price index last month followed an unrevised 0.3% gain in April, the Commerce Department’s Bureau of Economic Analysis said on Friday. In the 12 months through May, the PCE price index increased 2.6% after advancing 2.7% in April.
Economists polled by Reuters had forecast the PCE price index unchanged on the month and rising 2.6% year-on-year.
MARKET REACTIONS:
STOCKS: U.S. stock futures were little changed after the report, up 0.3%
BONDS: Benchmark 10-year yields were down three basis points to about 4.27%; Two-year yields fell four points to 4.69%.
FOREX: The U.S. dollar extended losses against the yen and was last down 0.2% at 160.53 yen
COMMENTS:
ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NEW YORK
“When you compare what we got today with expectations, it is very much in-line and so, the Fed will likely have enough comfort by the time of the September 18th meeting to cut rates for the first time.”
“What is notable is that the Fed had pencilled in 2.6% core PCE by the end of 2024, and it looks like we’re already there.”
“If you looking for a reaction to the data, the key place to look for a reaction to this core PCE at 2.6% clearly is an ongoing downdraft in treasury yields and that’s unambiguously good for equities.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“Personal income came in a little bit higher than expected, but spending obviously was lower and that’s key for the Fed, indicating lower inflation.”
“The (price index) numbers were good-in line with expectations. This is good news. It shows that shows that inflation has peaked and is moving in the right direction. The question is ‘will the feds begin to change their tune on lowering rates?'”
“I suspect that they’re going to want to see more evidence, but it’s becoming clearer that inflation has peaked.”
“If we get one more month of inflation ticking down, that opens the door for a rate cut in September despite the hardline stance taken by many Fed members.”
“I don’t think inflation going to get down to 2% this year. That doesn’t necessarily mean that the Fed cannot cut rates or loosen monetary policy.”
“Otherwise, the chances of sending the economy in a recession in the early part of 2025 becomes, increasingly, more of a possibility.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“After basically going nowhere for a year, real disposable personal income finally popped higher. I doubt that signals a change in the trend, though. Spending was nothing to write home about. Even Food service and accommodations had a dip in spending.
“Slower inflation is helping a bit. Lower inflation doesn’t mean lower prices, it just means they stop rising so quickly. There is deflation in goods prices with the goods price deflator down 0.1% from a year ago. Services inflation came in at 3.9% year-over-year, which is about where it’s been stuck since December. The Fed will see in this data what it wants to see and that’s going to keep everyone guessing as to when the next cut will be.”
JAY WOODS, CHIEF GLOBAL STRATEGIST, FREEDOM CAPITAL MARKETS, NEW YORK
“This is a perfect report – it gives the Fed the green light to cut in September, and sets the stage for the dovish rhetoric to continue, which we will hopefully hear in the July meeting. It shows the Fed measures are working and keeps a soft landing still on table. Of course, there’s a lot of data between now and September but it hits all the chords for the Fed looking to cut.
“The S&P 500 is on track to open at an all time high. I’d also watch the Russell 2000 small cap index today, if that rallies strongly that’ll be a tell on how the market has taken this.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, N.C.
“This morning’s data was almost perfectly in line with consensus. You’re not going to learn a lot from the report. The inflation rate is slowing. The last reading that we saw, year over year was 2.7%. It’s now come down to 2.6%. So the data is headed in the right direction. The rate of inflation does appear to be slowing so the Fed is going to be happy with this report, but I’m sure they’re looking for more they want certainty that we’re going to head to the 2% target. Even though we’re headed in the right direction, we’re not getting there very quickly. Its just decelerating at a much slower pace.”
“I don’t know that there’s enough in this report to get them ready to cut rates. But there’s nothing in this report that should keep them concerned. And so that’s a difference from earlier this year.”
This report doesn’t really give us any new information. It’s more a status quo. We still think the fed will cut rates once this year and they’ll do it in December, more because they want to cut rates than that they need to cut rates.”
“If a car is slowing down from 60 miles an hour to 30 miles an hour, when it goes from 60 to 40 you notice it but when it goes from 33 to 31, it’s just not very exciting.”
CAROL SCHLEIF, CHIEF INVESTMENT OFFICER, BMO FAMILY OFFICE, MINNEAPOLIS
“Markets will breathe the sigh of relief that the PCE didn’t really surprise one way or the other. It’s still indicative of an economy that’s coasting, hopefully to a more sustainable long term pace, with inflation still bumping its way downward”