WASHINGTON: The runway towards a Federal Reserve (Fed) interest rate cut will come more into focus amid fresh signs US inflation is abating and economic activity is simmering down.
Economists expect the personal consumption expenditures (PCE) price index minus food and energy, which is due on Friday, to have risen 0.1% in June for a second straight month.
That would bring three-month annualised core inflation down to the slowest pace this year, and below the Fed’s 2% target.
The report on monthly inflation, part of a reading on personal spending and incomes, will follow the government initial estimate of second quarter gross domestic product.
Forecasters see a 1.9% annualised rate after a 1.4% pace in the first three months of the year.
That would mark that slowest consecutive quarters of economic activity in two years and, combined with moderating job and wage growth, gives Fed policymakers scope to begin easing.
US central bankers next meet on July 30 and 31, and while the chances of a rate cut then are low, investors see a quarter-point reduction September as a virtual lock.
Bloomberg Economics said: “The June PCE inflation data will likely offer encouraging news for the Fed.
“The monthly pace of core PCE inflation, the Fed’s preferred price gauge, will likely be consistent with the 2% target for a third consecutive print.
“With the labour market cooling, personal income growth slowing and consumers becoming more discerning in their spending habits, we think the stage is set for a September rate cut.”
The busy economic data calendar in the includes reports on June sales of new and previously owned homes.
Economists project a moderate increase in new-home purchases and a fourth-straight decline in contract closings on existing properties.
The so-called lock-in effect, where homeowners are reluctant to give up their low mortgage rates, has restrained the resale market. — Bloomberg
