U.S. July PCE moderately rises, indicating that the Federal Reserve may cut interest rates by 25 basis points in September instead of 50

According to the Zhitong Finance APP, data released by the US Department of Commerce on Friday showed that the core Personal Consumption Expenditures (PCE) Price Index, a key inflation indicator monitored by the Federal Reserve, rose by 0.2% in July compared to the previous month. This increase is in line with Wall Street expectations and consistent with the June increase. On a year-on-year basis, it rose by 2.6%, slightly below analysts' expectations of 2.7%. Adjusted for inflation, US consumer spending in July increased by 0.4%, accelerating from the previous month.

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This Friday's report supports the market's expectation that the Federal Reserve is likely to ease monetary policy restrictions soon. Combined with some signs of weakness in the labor market and ongoing cooling of inflation, this explains why Federal Reserve Chairman Jerome Powell stated last week that the time is right for the central bank to lower borrowing costs and is likely to take action next month.

It is reported that since Powell almost confirmed at the Jackson Hole symposium that the Fed will assess inflation and stated that "now is the time for policy adjustments," this is the first time he has commented on inflation data. Powell also expressed "greater confidence" that inflation will fall back to the Fed's 2% target. Therefore, Friday's report is unlikely to change Powell's assessment of the current economic situation.

Economists generally believe that while the decline in inflation is a key consideration for the Fed when considering rate cuts, concerns about deteriorating labor market conditions are also increasingly in focus. Ryan Sweet, chief US economist at Oxford Economics, pointed out on August 23, "It won't be smooth sailing, there will be bumps along the way in inflation data." However, he also mentioned that the Fed's favored inflation indicators are not far from the Fed's target.

Market analysts also stated that if the Jackson Hole symposium essentially confirmed that the Fed is prepared to cut rates in September, then Friday's inflation data solidified the scenario of a 25 basis point rate cut, rather than 50 basis points. The data performance was in line with expectations, with yields almost unchanged, and the market still betting on a smaller rate cut next month. Traders still expect a significant rate cut in November or December, but if prices continue to gradually cool without larger-than-expected declines, the market may reconsider this expectation.

It is widely expected by investors that the Fed will cut rates in September, but the specific rate cut amount is still under discussion. As of the time of writing, according to the FedWatch tool from the Chicago Mercantile Exchange, the market estimates a 33% probability of a 50 basis point rate cut by the end of the September meeting.

After the report was released, the spot gold price experienced a slight short-term decline, falling to $2519.96 per ounce, before rebounding to around $2522.87 per ounce. This fluctuation reflects a mild market reaction to the PCE data, with investors temporarily not making significant adjustments to their positions based on the data At the same time, the US dollar index rose by 16 points in the short term, reaching 104.48, indicating that the strength of the US dollar is still continuing.

The yield on the US 10-year Treasury bond has reversed its previous decline, with an intraday increase of 0.54% to 3.882%. The rise in bond yields indicates that the market remains cautious about the Fed's short-term interest rate cuts. On the other hand, US stock index futures also rose slightly after the PCE data was released, indicating that investors remain optimistic about the economic growth outlook