US June PCE Inflation Slows to 3.7%, Core at 3.3%; Personal Spending Up 0.3%, Savings Rate at Four-Year Low
US personal consumption expenditure (PCE) price index rose 3.7% year-on-year in June, down from 4.1% in May, while core PCE eased to 3.3% from 3.4%. Personal spending increased 0.3% month-on-month, and the personal savings rate fell to 2.7%, a four-year low. The Federal Reserve held interest rates steady, with three dissenting members favoring a hike. Chair Walsh cited market rate increases as providing policy buffer.
Data from the US Commerce Department showed that the personal consumption expenditure (PCE) price index fell 0.1% month-on-month in June, with the year-on-year inflation rate dropping to 3.7% from 4.1% in May. Excluding food and energy, the core PCE price index rose 0.1% month-on-month, and the year-on-year rate was 3.3%, a slight cooling from 3.4% in May. By sector, energy goods and services prices fell 5.9% month-on-month, with gasoline prices declining 9.2%. Housing inflation rose only 0.2%. Overall goods prices fell 0.6%, while services prices edged up 0.1%. The Federal Reserve regards the PCE index as a key gauge of inflation trends, and the current inflation level remains significantly above its 2% policy target.
As a result, the personal savings rate fell to 2.7%, a four-year low. Labour market indicators have stabilised, making inflation the primary focus for Fed policymakers. The main driver of the June inflation decline was the drop in oil prices following a fragile ceasefire and the start of peace talks between the United States and Iran, but differences between the two sides remain large, and crude oil prices are still at relatively high levels.
The Federal Reserve decided to keep interest rates unchanged at its latest policy meeting. Fed Chair Walsh said at a press conference that while the Fed is determined to curb inflation, the rise in market interest rates over the past few weeks has provided some policy buffer for the central bank. Three of the 12-member policy committee dissented, favouring a rate hike. Long-term Treasury yields rose sharply, indicating that the pressure on the Fed to raise rates is intensifying. Walsh did not fully elaborate on his policy views, and stocks fell on the day, while bonds also faced selling.