The underlying personal consumption expenditures price index remained stable in July at 2.6% and in line with economists' forecasts. Following the release of this data, investors incorporated at least a 0.25% interest rate cut by the Federal Reserve on September 18. In addition, they give a 33% probability that the reduction will be 0.50%.
It should be noted that the employment data to be released next Friday will be critical in determining the magnitude of the cut, as a sharp deterioration in the labor market could justify a further rate decrease. In line with this, it emerged this week that looser labor market conditions now allow companies to offer workers significantly lower starting wages than they did a year ago. In addition, hiring bonuses are becoming rarer and companies are hiring in lower cost locations, including overseas. It was also learned that some companies are laying off entire divisions, renaming them and making new hires at much lower compensation levels.
Personal income increased 0.3% in July, slightly exceeding expectations, while personal spending increased 0.5%.
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