July’s Personal Consumption Expenditures (PCE) data — the Federal Reserve’s preferred inflation gauge — came in line with expectations on Friday. Core PCE, which excludes volatile food and energy costs, increased by 2.6% year-over-year, while the headline PCE index rose 2.5%.
Interactive Brokers senior economist José Torres joins Morning Brief to discuss what this data indicates about the overall economy.
Torres notes that despite cooling inflation, the economy is not amazing as consumers are “managing their budgets like light switches.” He highlights alternating periods of strong spending and pullbacks focused on saving. Additionally, while inflation is cooling in sectors like commodities and automobiles, services continue to show inflationary pressure.
Regarding the PCE data’s impact on future interest rate decisions, Torres believes the Fed will implement one rate cut, but it will affect pricing power across industries. He cautions that as rates lower, there are “risks that the economy starts to reheat.”
“I think as the Fed walks down the monetary policy stairs, it’s going to be a slow walk, similar to what we’re seeing in the ECB [European Central Bank],” Torres tells Yahoo Finance.
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