Core PCE printed at 4.2% y/y, up from the last release of 4.1% y/y, and headline inflation was higher at 3.3% y/y (compared with the previous 3% y/y). The upticks were due to base effects. Although regarded as volatile, the monthly figures for core and headline PCE were flat, and in line with projections at 0.2% m/m. This is annualised to 2.43%.
Given the base effect and the more stable monthly numbers, there was little movement in the US 2-year yield, a gauge for Federal Reserve monetary policy. The CME FedWatch Tool still has the probability that the Fed will pause at its 20 September meeting at 88.5%, with the target range remaining at 525-550 bps.
Although the July headline and core PCE measures were consistent with consensus, they still exceed the Fed's inflation target of 2%. However, if inflation remains under control, reports such as these PCE numbers are unlikely to encourage the Federal Reserve to raise rates again this year.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.