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  • Both headline and core PCE price indices hold steady

  • Dollar barely reacts to the release

  • Investors to pay more attention to next week’s NFPs

Both the headline and core PCE rates for July held steady at 2.5% and 2.6% y/y, respectively, confounding expectations of minor rebounds to 2.6% and 2.7%.

The US dollar barely reacted at the time of the release as the Fed’s favorite inflation metrics corroborate investors’ view that the Fed will proceed with a rate reduction in September.

The probability of a 50bps reduction remains at around 30%, with the total number of basis points worth of rate cuts by the end of the year resting at 100.

Considering that, at Jackson Hole, Powell noted that they will not tolerate further softening in the labor market, I believe that employment data may have become more important for traders than inflation numbers. After all, inflation seems to be confirming the narrative that it is on a sustained path to return to its objective of around 2%.

With that in mind, traders may now be sitting on the edge of their seats in anticipation of next week’s NFP report, where further cooling may increase the likelihood for the Fed to start this easing cycle with a bold 50bps rate cut.