
On Wednesday evening the Federal Reserve (FED) announced that the interest rate will not be reduced for the time being. For investors that is usually a disappointment. Shares and crypto coins usually rise in value when borrowing becomes cheaper. Yet the reluctance of the central bank is easy to understand with the latest PCE inflation figures in mind.
PCE inflation rises faster than expected
According to the latest data, the so-called PCE inflation (Personal Consumption Expenditures) increased to 2.6 percent on an annual basis in June. Economists counted on average 2.5 percent. The core inflation, where food and energy prices are not taken into account, amounted to 2.8 percent. That is the second consecutive month with an increase and indicates persistent price pressure in the US economy.
The PCE inflation is the preferred measure of the Federal Reserve, because it better reflects the actual expenditure of consumers than the traditional consumer price index (CPI).
Interest reduction plans on the long track?
The rising inflation makes the work of the Fed more difficult. To keep price increases under control, the Central Bank decided on Wednesday evening to leave interest on a bandwidth of 4.25 to 4.50 percent. Powell announced that the risk of new price pressure, partly due to trade measures from President Trump, is a reason for caution.
“The impact of import duties works slower in consumer prices than expected,” Powell said earlier. “It remains difficult to predict how strong and how long -term this effect will be.”
Markets remain divided over interest rate views
According to the latest figures from the Futuresmarkt, 60.8 percent of traders, it is unlikely that there will already be an interest rate reduction in September. In October the image tilts: then 61.2 percent expect a decrease to 4.00 to 4.25 percent.
For December, that expectation is even stronger: only 15 percent count on no reduction. This suggests that, despite current inflation, the market is still anticipating monetary relaxation later this year – unless new import duties throw a spanner in the works.
Source: https://newsbit.nl/inflatie-in-de-vs-loopt-opnieuw-op-renteverlaging-verder-uit-zicht/