Most economists believe the Fed will not cut interest rates by half a percentage point as long as the US economy is still doing well and inflation remains above its 2% target.
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| Consumer spending - which accounts for more than two-thirds of US economic activity - rose 0.5% in July 2024, after rising 0.3% in the previous month. (Source: Getty Images) |
US consumer spending rose sharply in July 2024, suggesting the world's largest economy is still growing steadily at the start of the third quarter of 2024. This is believed to reduce the possibility of the US Federal Reserve cutting interest rates by 0.5 percentage points next month.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5 percent in July after rising 0.3 percent in June, the Commerce Department reported on Aug. 30. Economists polled by Reuters had forecast spending would accelerate to a 0.5 percent gain.
This shows that US consumer spending has maintained much of its momentum from the second quarter; this is a factor that helped push Gross Domestic Product (GDP) growth to 3%, after increasing 1.4% in the first quarter.
Concerns have been raised about the health of the US economy after the country's unemployment rate rose to a nearly three-year high of 4.3% in July. It was the fourth consecutive month of jobless claims, prompting financial markets and some economists to weigh expectations for a half-point rate cut by the Fed as it looks to begin a round of monetary easing in September.
The slowdown in the labor market, driven largely by a drop in hiring, has caught the attention of U.S. policymakers, with Fed Chairman Jerome Powell saying last week that “it is time for Fed policy to adjust.”
Most economists believe the Fed will not cut interest rates by half a percentage point as the economy continues to perform well and inflation remains above the central bank's 2% target, despite continued downward price pressures.
The US personal consumption expenditures (PCE) price index rose 0.2% in July 2024, after rising 0.1% in June. Excluding volatile sectors such as food and energy, the PCE price index rose 0.2% in July, the same as the increase in June.
In the 12 months to July 2024, core US inflation rose 2.6%, the same as in June.
The Fed tends to track PCE price indexes to adjust monetary policy and has maintained the current interest rate (around 5.25-5.50%) for more than a year, after raising interest rates a total of 5.25 percentage points in 2022 and 2023.
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