The Federal Reserve’s preferred inflation measure rose 2.5% year-on-year in June, in line with market expectations and raising hopes of a rate cut in September.
The Commerce Department said on Friday that the personal consumption expenditures index (PCE) rose 0.1% in June from the previous month, while core PCE, which excludes volatile food and energy prices, rose 0.2% from May.
The latest data bolsters growing optimism that the Fed will begin cutting interest rates from their highest in 23 years in September, and comes ahead of a two-day Fed meeting next week.
Dow futures rose more than 260 points, while Nasdaq and S&P 500 futures also saw big gains.
The Commerce Department released data Thursday showing the economy continues to grow strongly, defying some observers’ predictions of a slowdown.
The country’s economy grew at a strong 2.8 percent annual rate last quarter, with consumers and businesses driving growth despite pressure from continuing high interest rates.
The Commerce Department released a report on Thursday that showed gross domestic product (the total production of goods and services) rose in the April-June quarter after growing 1.4% in the January-March period.
Economists had expected weaker growth of 1.9 percent for the year.
The GDP report also showed that inflation continues to moderate but remains above the Federal Reserve’s 2% target.
PCE rose at an annualized rate of 2.6% last quarter, down from 3.4% in the first quarter of this year. So-called core PCE inflation, which excludes volatile food and energy prices, rose at a 2.9% pace.
This was down from 3.7% in the January-March period.
The latest data should strengthen confidence that the U.S. economy is on the verge of a rare “soft landing” — one in which high Fed-stimulated interest rates keep inflation in check without sending the economy into recession.
The economic expansion last quarter was driven by personal consumption, the heart of the U.S. economy.
It rose 2.3% annually in the April-June quarter, up from a 1.5% increase in the January-March quarter.
Spending on goods such as cars and appliances rose 2.5% after falling 2.3% in the first three months of the year.
Business investment rose last quarter, led by an 11.6% year-on-year increase in capital spending. Growth also accelerated as companies built up inventories.
Meanwhile, a sharp rise in imports, which are subtracted from GDP, dragged down growth in the April-June period by about 0.9 percentage points.
Federal Reserve officials have made clear they are ready to start cutting interest rates soon, with the cuts widely expected in September, as inflation nears its 2% target.
As the presidential election campaign heats up, the state of the economy has captured Americans’ attention. Inflation has slowed sharply to 3% from 9.1% in 2022, but prices are still well above pre-pandemic levels.
The economic slowdown this year reflects primarily a series of aggressive interest rate hikes by the Federal Reserve, which have caused borrowing rates to rise sharply for mortgages, auto loans, credit cards and many business loans.
The Fed’s rate hikes — 11 in 2022 and 2023 — were in response to a sharp increase in inflation that began in the spring of 2021, when the economy recovered unexpectedly quickly from the COVID-19 recession, causing severe supply shortages.
Russia’s invasion of Ukraine in February 2022 made matters worse by sending prices of energy and grains on which the world depends soaring, sending prices soaring across the country and around the world.
Economists had long predicted that rising borrowing costs would push the U.S. into recession, but the economy continued to thrive.
Consumers, who account for about 70% of the country’s gross domestic product (GDP), continued to shop, buoyed by a strong job market and savings they had made during the coronavirus lockdown.
