June’s Personal Consumption Expenditures (PCE) data largely came in line with expectations — core PCE, which excludes food and energy costs, rose 0.2% month-over-month (2% expected) and 2.6% year-over-year (2.5% expected). Core PCE trends can be explained by rising services inflation.
Macquarie Group global FX and rates strategist Thierry Wizman and HSBC US economist Ryan Wang join Catalysts to discuss the economic implications of the data and Federal Reserve outlooks on interest rates.
Wang emphasizes that the growth in second quarter US GDP (gross domestic product) was “the most relevant for Fed policy.” He notes first-half growth was “more resilient than anticipated,” while “inflation overall is conforming to expectations,” pointing to a potential rate cut in September. However, rate cuts typically signal recession fears, which isn’t the current case. Wang explains markets are “having a hard time trying to deal with what this means for the outlook over the year ahead.”
Wizman believes the prospect of a Fed cut is currently supporting markets (^DJI, ^IXIC, ^GSPC). He states corporate earnings have been “not good,” adding, “I think if it were not for the prospect that the Fed would start easing, presumably in September, you would have seen a lot more risk-off sentiment prevail in the last couple days.”
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