Summary: The latest U.S. data is mixed, with inflation continuing to fall, but personal income and consumer spending also deteriorating. The U.S. dollar index fell in the short-term, and the market may have more reactions when Federal Reserve Chairman Jerome Powell speaks at the annual meeting of the central bank in Jackson Hole.
The latest U.S. PCE inflation report for July showed that headline inflation in July was 6.3%, down 0.5% from June, and core inflation was 4.6%, down 0.2% from June.
PCE is short for Personal Consumption Expenditure. PCE accounts for about 60%-70% of U.S. GDP. A price index based on PCE is the Fed’s preferred inflation indicator. As the last Fed rate decision said, the pace of rate hikes will depend on economic data.
At the same time, economic data released at the same time showed that personal income in the United States increased by only 0.2% in July compared with June (up 0.7% in June compared with May), while personal consumption expenditure increased by only 0.1% (increased by 1% in June compared with May) .
To sum up, the US economy seems to be evolving along the path envisioned by the Fed, that is, sacrificing some demand to curb inflation. Fed official Bostic said inflation data showed the economy was responding to the Fed’s policy and did not see a recession, leaning toward a 50 basis point rate hike in September.
After the data was released, the US dollar index fell 20 points in the short-term.
US Dollar Index 30 minute chart
Markets reacted more restrainedly, perhaps awaiting Fed Chair Jerome Powell’s comments on the economic outlook and policy at the annual Jackson Hole meeting.
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