WASHINGTON (Reuters) – U.S. consumer spending rose at a brisk pace in July, signaling solid activity at the start of the third quarter and potentially dampening the prospect of a half-percentage point interest rate cut by the Federal Reserve in September.
PCE inflation, which is closely monitored by the American central bank, increased moderately in July, in line with expectations, according to data published Friday by the Commerce Department.
The yield on ten-year Treasuries, which had fallen before the publication of the figures, turned upwards and gained 1.2 basis points to 3.8786%, while the two-year yield, more sensitive to expectations on rates, rose 3.6 basis points to 3.9289%.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month, as analysts expected, after increasing 0.3% in June.
They thus retained most of their momentum from the second quarter, contributing to the growth of the American economy over this period, revised upwards to 3% on Thursday by the Commerce Department.
The health of the economy had raised concerns after the unemployment rate in July rose to a three-year high of 4.3 percent, leading financial markets and some economists to anticipate a 50 basis point cut in interest rates in September at the start of the Fed’s announced shift to an easing policy.
Most economists, however, think the Fed will settle for a quarter-point cut because the economy is showing resilience and inflation remains above the central bank’s 2% target, although price pressures continue to ease.
The U.S. PCE consumer price index rose 0.2% month-on-month in July, as expected, after rising 0.1% in June.
Over a year, the index was stable at 2.5% in July, while economists questioned by Reuters were expecting an increase of 2.6%.
The adjusted “core PCE” index over one year was also stable in July at 2.6%, while analysts were expecting a slight increase to 2.7%.
On a monthly basis, the core PCE index rose 0.2% last month, as expected by the consensus, after an identical increase in June.
(Written by Lucia Mutikani, Diana Mandiá, edited by Jean-Stéphane Brosse)
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