US inflation edges up as investors await Fed decision

US inflation edges up as investors await Fed decision

The Federal Reserve’s preferred measure of inflation inched toward the central bank’s target in June while consumer spending rose moderately, data on Tuesday showed, as investors brace for the central bank to cut interest rates this week.

Core personal consumption expenditures, an underlying gauge of inflation, rose 0.2 per cent month-on-month in line with expectations, the Commerce Department said.

However, the 1.6 per cent year-on-year increase is up from the downwardly revised 1.5 per cent reading in May, but shy of economists’ expectations for 1.7 per cent. That compares with the central bank’s target of 2 per cent.

The data comes as the Fed is widely expected to deliver a 25 basis point rate cut on Wednesday.

In recent weeks there had been debate about whether the central bank would deliver a one or two notch cut and some held out hope that concerns over global growth and sluggish inflation might prompt a sharper half-point cut but that view has since petered away.

Sluggish inflation in the face of a declining unemployment rate has been a puzzle for the central bank. During his recent Congressional testimony, Fed chair Jay Powell cautioned that downbeat prices could lead to an “unhealthy dynamic” of lower interest rates and less room to act in a downturn.

Tuesday’s inflation report also showed personal incomes rose 0.4 per cent month-on-month in June in line with expectations.

Meanwhile, spending rose 0.3 per cent in June, also in line with expectations, but cooling from a 0.5 per cent rise the previous month. The pace of spending growth cooled for the third consecutive month.

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