PCE Report Signals Easing Inflation: Top Wall Street Economists Weigh In On Market Implications

Zinger Key Points
  • June PCE data shows cooling inflation at 4.1% YoY, easing market fears and suggesting the period of high price pressure may have passed.
  • With inflation easing and growth continuing, the Fed may extend a pause on rate increases, creating a favorable environment for risk assets.

The Federal Reserve’s favored inflation indicator, the Personal Consumption Expenditure (PCE) price index, saw a slight decrease in price pressures in June, easing investors’ concerns about a potentially destabilizing inflation surge.

What Happened: The PCE report for June, issued by the Bureau of Economic Analysis on Friday, indicated that the annual rate of underlying inflation came in a 4.1% compared to economist projections of 4.2%, giving investors reason to believe that the most intense period of price pressure is in the rearview mirror.

Economists shared their thoughts on the PCE data and its potential implications.

Gina Bolvin, president of Bolvin Wealth Management Group, believes that the softer-than-expected PCE data could be the trigger for the market to hit new highs, especially after the stronger than expected GDP and positive earnings season.

“The Fed is data-dependent but so is the market,” she said, suggesting that the upcoming employment report will also be closely watched given the absence of a Fed meeting next month.

Jeffrey Roach, chief economist at LPL Financial, was positive about the report, noting a recovery in real spending and a decline in headline annual inflation.

He underlined that goods prices in June were outright lower than they were a year ago, and services prices were driving inflationary dynamics. If inflation metrics continue to cool, Roach expects the Fed to pause at their next meeting in September.

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Meanwhile, Quincy Krosby, chief global strategist for LPL Financial, noted the PCE’s cooling effect on market fears regarding escalating inflation.

She highlighted the role of stronger earnings from major companies like Intel Corporation INTC and Proctor & Gamble Co PG in maintaining a positive earnings season. However, Krosby also observed that core inflation, which came in slightly below consensus estimates, won’t end the ongoing “dove/hawk” debate at the Fed.

She cautioned, “It is one thing to applaud that core inflation is edging lower, but another for the Fed to declare victory when it remains stubbornly double the Fed’s desired long-term goal of 2%.”

Echoing the sentiment, George Mateyo, chief investment officer at Key Private Bank, said to CNBC, “Today's economic releases reaffirm the current market narrative that inflation is cooling and economic growth is continuing, which is a favorable environment for risk assets.”

“The Fed and investors will take comfort in these numbers as they suggest that the inflation threat is dissipating, and thus the Fed may now be able to go on vacation and assume an extended pause with respect to future interest rate increases,” Mateyo added.

June's PCE data, coupled with expert opinions, suggest that while the inflationary pressures are easing, the road to the Fed’s target still presents steep hurdles.

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Photo: Shutterstock

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Posted In: Large CapMacro Economic EventsMid CapNewsEconomicsFederal ReserveTrading IdeasGeneralGeorge MateyoGina BolvinJeffrey RoachQuincy Krosby
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