The Federal Reserve’s key inflation rate came in a touch hotter than expected in the second quarter, as U.S. GDP growth perked up after a slow start to the year, the Commerce Department reported Thursday. After the data, S&P 500 futures were little changed following Wednesday’s sharp sell-off, as investors weighed the implications for the rate-cut outlook.
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What Stock Market Investors Need To Know About The PCE Report
This story will be updated shortly with more data and analysis. Please check back.
Primary Fed Inflation Rate
The Federal Reserve’s primary inflation gauge, the core PCE (personal consumption expenditures) price index, rose at a 2.9% annual rate in Q2, above 2.7% forecasts. In Q1, the key Fed inflation rate had accelerated to a 3.7% annualized pace.
Headline inflation slowed to a 2.6% annualized rate in Q2, down from 3.4% in Q1.
The quarterly core PCE inflation data provides a preview of Friday’s big inflation report, which will break out monthly increases in the core PCE price index. Wall Street expects a 0.2% increase for June, lowering the 12-month core PCE inflation rate to 2.5%.
GDP Growth
The U.S. economy grew at a 2.8% rate in Q2, topping forecasts of 2% growth, following Q1’s sluggish 1.4% pace.
Personal consumption expenditures grew at a 2.3% rate, up from 1.5% in Q1, as spending on goods bounced back after a negative start to the year.
Nonresidential fixed investment accelerated to 5.2% growth, as spending on structures fell 3.3% but equipment investment jumped 11.6% and intellectual property product outlays grew 4.5%.
Government purchases and investment added a half-point to GDP growth.
Federal Reserve Rate-Cut Odds
Ahead of Thursday’s data, markets were pricing in 9% odds of a quarter-point rate cut at next week’s Fed meeting. Markets were fully pricing in a quarter-point move by the Sept. 18 Fed meeting, with 20% odds of 50 basis points in rate cuts by then.
Wall Street saw 69% odds of three quarter-point rate cuts by the end of the year.
S&P 500
After the GDP release, S&P 500 futures pointed to a 0.1% rise in early Thursday stock market action. The S&P 500 suffered a 2.3% drubbing on Wednesday, its sharpest loss since December 2022.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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