Inflation's Unyielding Grip: PCE Index Unveils Stubborn 4.2% Surge

EDITOR'S NOTE: As economic forces clash and ripple through the market landscape, the latest PCE (Personal Consumption Expenditure) index release for July 2023 sends a clear message: inflation's relentless grip refuses to loosen. Amidst an edgy environment where consumer spending powers through and weekly jobless claims decline, the core PCE price index boldly climbs from 4.1% to 4.2% annually, casting a shadow over economic prospects. With a perplexing conundrum at hand, where good news spells trouble for the Federal Reserve's quest to balance growth and inflation, the stage is set for an intricate dance between policy and financial stability.

Persistent

pər-ˈsi-stənt ADJECTIVE

1. existing for a long or longer than usual time or continuously: such as retained beyond the usual period...
2. continuing or inclined to persist in a course continuing to exist despite interference or treatment

Today the BEA released the PCE (Personal consumption expenditure) index for July 2023. The report contains the most current data on inflation and the preferred measuring benchmark by the Federal Reserve. The Bureau of Economic Analysis constructs and reports on consumer spending, personal income, and outlays. Today’s report confirmed what most Americans are fully aware of, inflation continues to be troublesome, and persistent.

According to the report the core PCE price index (excluding food and energy) rose from 4.1% to 4.2% annually. Although prices continue to rise American consumers increased their spending by 0.8% in July although personal income only gained 0.2%. The core PCE rose 0.2% month over month and weekly jobless claims fell to 228,000 down 4000.

This is the largest increase in the last six months. Data indicated that the savings rate fell by 3.5% which could mean that increased consumer spending is not sustainable.

Perplexing times, good news is bad news for the Federal Reserve

The U.S. economy came out of a recessionary period and has moved into a period of strong economic growth. Currently, the Federal Reserve Bank of Atlanta has estimated that GDP growth for the third quarter will be 5.9% up 0.1% from their projections on August 16. This welcome news of a robust economy in light of inflationary pressures is troublesome for the Federal Reserve. It makes their mandate of taking inflation to a 2% target much more difficult while simultaneously fulfilling their other mandate of full employment.

It means that the Federal Reserve is likely to maintain its aggressive and restrictive monetary policy. According to the CME’s Fedwatch Tool, there is an 89% probability (down from 90% yesterday) that the Federal Reserve will not raise its benchmark rate at the September FOMC meeting.

This probability indicator also suggests a 57.1% probability (from 50.1% yesterday) of a rate hike at the November meeting and a 56.1% probability of a rate hike in December up from a 49.5% probability yesterday.

Source: Kitco

Gold prices were slightly lower on the day with the totality of the decline directly attributable to dollar strength, and fractional buying. As of 5:15 PM EDT gold futures are currently down $6.40 and fixed at $1966.60. Because gold futures are currently trading down by approximately 0.19% and the dollar index is currently up by 0.45%, we can derive that today’s decline in gold is entirely attributable to dollar strength rather than selling pressure. The dollar index is currently fixed at 103.635.

Source: Kitco

Tomorrow the Labor Department will release the jobs report for last month. This report will also have a large impact on the financial markets including gold and silver. Current estimates are that the report will show that an additional 170,000 jobs will be added to payrolls next month and that the unemployment rate will hold steady at 3.5%.

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Wishing you as always good trading,

Originally published by Gary Wagner at Kitco