- The federal-funds target rate range stands at 2.25% - 2.50%
- The PCE price index fell 0.1% in July and rose 6.3% year-over-year
- The Index of Consumer Sentiment published by the University of Michigan rose to 58.2 in August
Top Three Market Headlines
Fed Chairman Reinforces Restrictive Policy Stance: In a much anticipated speech last Friday, Federal Reserve Chairman Jerome Powell reiterated that the central bank intends to continue raising interest rates to a "sufficiently restrictive" level in order to bring inflation back to 2%. The Fed has raised its policy benchmark, the federal-funds rate, four times already in 2022. The Chairman's comments countered speculation that the Fed could soon halt its rate hike campaign, disappointing investors and sending the S&P 500 index tumbling to a 3.4% loss for the day.
Key Inflation Gauge Cools Modestly in July: According to the Bureau of Economic Analysis (BEA), the personal consumption expenditures (PCE) price index decreased 0.1% in July versus the prior month. The drop was attributed to falling gasoline costs, which offset higher prices for services and food. On an annual basis, the index rose 6.3%, which was down from June's 6.8% pace. The "core" PCE price index, which strips our volatile food and energy prices and is considered the Federal Reserve's preferred inflation gauge, rose 4.6% over the prior year, versus 4.8% in June. While pricing pressures eased slightly in July, the overall rates of increase are still significantly above the Federal Reserve's target, underpinning the central bank's commitment to tightening monetary policy.
Upswing in Consumer Sentiment: The Index of Consumer Sentiment published by the University of Michigan rose to 58.2 in August, up from 51.5 in July. The August report highlighted that falling gas prices over the past month have sparked some optimism in consumers, who now expect the inflation rate to register 4.8% over the next year, down from 5.2% in July. After touching a record low in May, the index, which is based on surveys of consumers regarding their outlook on the U.S. economy, has now risen for two straight months. However, the August reading was still 17% below its level one year ago.