U.S. equities are down 2.0% on Friday even after the Bureau of Economic Analysis said the Personal Consumption Expenditures Price Index eased to 6.3% in July.
Jerome Powell reacts to the PCE reading
Versus the prior month, it was “down” 0.1%; reiterating the narrative of “peak inflation”.
Still, Chair Jerome Powell says a couple months of down readings are not enough for the central bank to slam the breaks on raising rates. This morning at “Jackson Hole”, he said:
It’s not a place to stop or pause. Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.
Core PCE (excluding food and energy) was still up 0.1% month-over-month but the increase, nonetheless, was lower than 0.2% expected.
More pain ahead for the U.S. economy
The U.S. economy has already had two consecutive quarters of negative GDP. But Powell sees more pain ahead as interest rates continue to move up.
While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they’ll also bring some pain to households and business. But a failure to restore price stability would mean far greater pain.
How much the FOMC chooses to lift rates at its next policy meeting in September, he added, will depend on the “evolving outlook”. Market is torn between half a point and three-quarters of a percentage point at present.
Also on Friday, personal income was reported up 0.2% in July. Economists, however, had modelled for a 0.6% increase instead.
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