US Q2 Consumer Spending and Investment Surge; Inflation Cools but Fed Holds Rates Steady

US consumer spending rose 3.2% quarter-on-quarter in the second quarter, a sharp acceleration from the 0.5% pace in the first quarter. Business investment increased 8.4% quarter-on-quarter, slowing from the 10.6% growth in the first quarter but remaining elevated. The domestic private final sales indicator, which excludes net exports, inventory changes, and government spending, rose 3.9% quarter-on-quarter, doubling from the 1.7% pace in the first quarter and reaching its highest level since early 2023. Net exports declined, weighing on overall GDP performance. Data released on the same day by the US Bureau of Economic Analysis showed that the personal consumption expenditures (PCE) price index fell 0.1% month-on-month in June, the first monthly decline since 2020. The year-on-year increase in the PCE price index slowed to 3.7% from 4.1% in May. The core PCE price index rose 0.1% month-on-month, and its year-on-year increase eased to 3.3% from 3.4%, remaining above the Federal Reserve's 2% target for the sixth consecutive year. The June cooling in inflation was mainly driven by a decline in oil prices following a temporary US-Iran ceasefire agreement. The average price of regular gasoline in the second quarter was $4.22 per gallon, compared with less than $3.00 per gallon before the conflict. Gasoline prices rose again in July, surpassing $4.10 per gallon, but remained below the post-conflict high of over $4.50 per gallon in May. The Federal Reserve decided on July 29 to keep its benchmark interest rate in a range of 3.5% to 3.75%, with a vote of 9 in favor and 3 against. Three regional Fed bank presidents had advocated for a 25-basis-point rate increase. Employment growth remained steady in the second quarter, and the unemployment rate stayed low. Most major companies that have reported quarterly results posted sales and profit growth, with American Express reporting increased cardmember spending and Hasbro raising its full-year outlook.