Calm Inflation Reading Raises Chance Of Fed Rate Cut

A new reading from the Federal Reserve's preferred inflation gauge is likely to keep the door open for the central bank to signal a September rate cut at its policy meeting, Jennifer Schonberger reported for Yahoo Finance.

Inflation rose 2.6% over the prior year in June.

"This reinforces no move in July and that they will tee up their first rate cut for the September meeting," said Wilmington Trust bond portfolio manager Wilmer Stith.

When Fed officials gather in Washington, D.C., "we suspect policymakers will have a long and lively debate about whether and how to signal a September rate cut," added EY chief economist Gregory Daco.

A recent reading of the so-called core Personal Consumption Expenditures (PCE) Index — which excludes volatile food and energy prices — showed inflation rose 2.6% over the prior year in June.

While that was above economists’ estimate, it was unchanged from the month prior and marked the slowest annual increase for core PCE in more than three years.

The three-month annualized rate fell to 2.3% from 2.9%, demonstrating more progress after some hotter-than-expected readings in the first quarter.

The fact that the Fed’s preferred inflation measure held steady in June gives policymakers more time to examine data in July and August and be sure inflation is returning to their 2% target before cutting rates in September.