In the wake of the Federal Reserve ending its short-lived “pause” on rate hikes, the latest personal consumption expenditure (PCE) index—the Fed’s preferred inflation measurement—has shown continued cooling.
The Commerce Department announced Friday that PCE inflation rose 3% in June from a year earlier, down from May’s reading of 3.8%. Core prices—everything except volatile food and energy—followed a similar track, tallying an annual growth of 4.1% after several months at 4.6%.
Monthly, the index increased by 0.2%, up slightly from the 0.1% increase in May. Core PCE followed suit with a 0.2% increase, tracking with a recent trend of monthly cool down that appeared to be taking shape during the spring.
According to the Friday report, consumers spent more on goods and services, as the former saw prices decrease by 0.1% for the month. Cost of services—which include financial services, housing and utilities—rose by 0.3% from May to June.
The index comes mere days after the Fed announced a quarter percentage point increase in the federal funds rate, marking the eleventh increase that the Fed has implemented since it started its campaign to reel in elevated inflation in March 2022.
The Fed still has its sights on reaching the 2% benchmark for inflation and has left no doubt that it would continue tightening its monetary policy to make that happen despite already favorable signs of retracting inflation.
The latest Consumer Price Index (CPI) reading reached 3% in June, its lowest level since March 2021, providing further evidence that inflation is coming down. The latest rate hike and the Fed’s sentiment toward staying the course on its campaign have also left many pundits in the real estate industry worried about the implications of an overcorrection.
“It remains uncertain whether the Fed is going to raise rates again this year, but if they do, there is a real risk that they will overshoot, weakening the labor market and sending the economy into recession,” said Dr. Lisa Sturtevant, Bright MLS chief economist, in a statement following the Fed’s latest meeting.
With the next Fed meeting scheduled for September, it is still being determined whether the central bank will skip another increase or continue its trajectory with the federal funds rate.
As inflation has cooled in recent months, the Fed opted to skip increasing rates in June for the first time in 15 months. Fed officials have maintained since June that they would implement two more increases, which would push the flagship fund rate to around 5.5%, its highest level in over two decades.
That should leave at least one more rate hike for the remainder of 2023, but there is still plenty of uncertainty surrounding when that will come. Fed Chair Jerome Powell didn’t offer much clarity on the timeframe for the impending rate hike during a press conference following the Fed’s July meeting.
“I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted, and I would also say it is possible that we would choose to hold steady at that meeting. We will be making careful assessments,” Powell said at a press conference following the meeting.
Despite being repeatedly pressed by journalists on how the central bank would approach future meetings, he offered little besides pointing out that they will have two months of economic data by the next Federal Open Market Committee (FOMC) meeting.
