The Federal Reserve’s preferred measure of inflation held steady at 2.5 per cent in the year to July, according to data released on Friday that paves the way for the US central bank to start cutting interest rates next month.
The personal consumption expenditures index compared with economists’ expectations of a 2.6 per cent rise and June’s figure of 2.5 per cent. The Fed’s target for headline PCE index is 2 per cent a year.
“Core” PCE — which strips out volatile food and energy costs — remained at 2.6 per cent, below the forecast 2.7 per cent.
The figures from the commerce department come after Fed chair Jay Powell said last week that the “time has come” to begin cutting rates as inflation eases and the labour market slows.
Powell’s comments at the annual Jackson Hole conference made it all but certain that the central bank will lower its main rate from its current range of between 5.25 and 5.5 per cent at its next meeting in September.
Much of the debate among Fed watchers has now shifted to whether the central bank will cut by 0.25 or 0.5 percentage points in September, and how steep the reductions will be for the rest of the year.
US government bond prices were little changed following the publication of the data. The yield on the two-year Treasury note, which rises when prices fall, was up 0.03 percentage points on the day, at 3.93 per cent.
Stock futures suggested the S&P 500 was set to rise 0.5 per cent compared with immediately before the release.
This is a developing story