The Commerce Department said prices rose 2.6 per cent in July compared with a year ago, as measured by the personal consumption expenditures index. That’s the same annual increase as in June and in line with what economists expected.
Still, excluding the volatile food and energy categories, prices rose 2.9 per cent last month from a year earlier, up from 2.8 per cent in June and the highest since February.
While inflation is much lower than the roughly 7 per cent peak it reached three years ago, it is still running noticeably above the Fed’s 2 per cent target.
Still, Federal Reserve Chair Jerome Powell signaled last week that the central bank may cut its key interest rate at its meeting next month, amid signs of sluggishness in the job market.
The most recent government data suggests hiring has slowed sharply since this spring.
“Today’s in-line PCE Price Index will keep the focus on the jobs market,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “For now, the odds still favor a September cut.”
Lower rates can boost investment prices and the economy by making it cheaper for US households and businesses to borrow, but they risk worsening inflation.
Traders see a roughly 87 per cent chance that the central bank will cut its benchmark interest rate next month by a quarter of a percentage point, according to data from CME Group.
Meanwhile, the latest reading in a survey of US consumers by the University of Michigan showed sentiment soured this month. The final August reading is the lowest since May, reflecting heightened concerns about prices and the economy.
Treasury yields were mixed in the bond market. The yield on the 10-year Treasury rose to 4.23 per cent from 4.21 per cent late Wednesday. The yield on the two-year Treasury, which more closely tracks expectations for Federal Reserve action, slipped to 3.62 per cent from 3.63 per cent.
The Fed will get to review two more important inflation barometers before its next policy meeting, the producer price index and consumer price index. Unless those reports show a huge spike in inflation, the Fed is “almost guaranteed” to cut interest rates next month, said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
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Among the stocks that weighed on the market Friday were Ulta Beauty and Marvell Technology.
Ulta fell 7.1 per cent despite posting second-quarter earnings and revenue that topped analysts’ estimates, while Marvell slid 18.6 per cent after its third-quarter guidance fell short of what Wall Street was expecting.
Not all stocks lost ground. Petco Health & Wellness and Autodesk bucked the broader market slide after reporting better-than-expected quarterly results. Petco jumped 23.5 per cent and Autodesk climbed 9.1 per cent.
All told, the S&P 500 fell 41.60 points to 6,460.26. The Dow dropped 92.02 points to 45,544.88, and the Nasdaq gave up 249.61 points to close at 21,455.55.
European markets were mostly lower and Asian markets closed mixed.
US markets will be closed on Monday for the Labor Day holiday.
AP
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