Zhitong Finance learned that the indicators favored by the Federal Reserve to measure potential US inflation rose moderately in June, and consumer spending remained healthy. These signs encouraged officials hoping to cool down inflation without damaging the economy. According to data released by the US Bureau of Economic Analysis on Friday, the core PCE price index, which excludes highly volatile food and energy projects, rose 0.2% from May and 2.6% year on year; market expectations are 0.2% and 2.5%, respectively.

Policymakers pay close attention to inflation in the services sector, which excludes housing and energy, which is often more sticky. The data showed that in June, this indicator increased 0.2% month-on-month for the second month in a row. Housing-related prices rose 0.3% in June, a slight slowdown from the 0.4% monthly increase in the past three months, and the smallest monthly increase since at least January 2023. Commodity prices fell 0.2% month-on-month.

The report showed that inflation-adjusted spending on services and goods both increased by 0.2%, falling short of expectations of 0.3%; however, the May increase was revised up. Housing and utilities are driving growth in service spending, while automobiles and recreational goods are driving growth in commodity spending. As spending remained relatively strong, the savings rate fell to 3.4%, the lowest level since December 2022.

Despite this, signs of a cooling labor market are beginning to translate into declining purchasing power. Wages and salaries rose 0.3% in June, half the growth rate of the previous month. Personal income grew by only 0.2%, below expectations of 0.4%. On an inflation-adjusted basis, disposable income growth slowed to 0.1%.

Robert Frick, a business economist with the US Navy Federal Credit Union, said, “The two-word summary of this report is 'good enough'. The spending situation is good enough to maintain economic expansion, the income situation is good enough to maintain spending, and the level of inflation in personal consumption spending is good enough for the Federal Reserve to easily make the decision to cut interest rates.”

Although quarterly data released on Thursday showed that past figures may have been revised higher, US Treasury bonds rose as inflation data met expectations, and stock index futures continued to rise. Friday's report provides some encouraging evidence that the Federal Reserve's austerity policies are affecting the economy without causing much damage.

Cherry Lane Investments analyst Rick Meckler said that the US personal income and expenditure data for May were revised to 0.4%. This is a solid improvement in income and expenditure, and inflation has eased somewhat. As a result, this pretty good report further supports the soft landing claim. After a tough week, the market has a chance to rebound higher today.

The market still generally expects Fed officials to keep the benchmark interest rate unchanged at next week's meeting at a 20-year high, but investors are betting that the first rate cut will take place in September. According to the CME Federal Reserve's observation tool, the futures market shows that the probability of interest rate cuts in September is about 86%, followed by interest rate cuts at the FOMC meetings in November and December. However, Federal Reserve officials have always been cautious in their remarks and emphasized that there is no established policy path, which is guided by data.

Chris Larkin, head of trading and investment at Morgan Stanley, said: “Overall, this has been a great week for the Federal Reserve. The economy appears to be on a solid footing, and PCE inflation has remained largely stable. However, it is still very unlikely that interest rates will be cut next week. Although there was enough time for the economic situation to change before the FOMC meeting in September, the data is already trending in the direction desired by the Federal Reserve.”