Traders are weighing signs of a resilient U.S. economy against increasing calls for quicker rate cuts from the Federal Reserve. The swaps market is currently pricing in the first rate cut for September. Economic growth in the second quarter exceeded forecasts, showcasing that demand remains robust despite higher borrowing costs. A key measure of underlying inflation rose 2.9%, easing from the first quarter but still above estimates.
As the week concludes, all eyes will be on the monthly Personal Consumption Expenditures (PCE) data, the last significant data point before next week’s Fed meeting. The core figure is anticipated to slow to near the central bank’s 2% target on a three-month annualized basis. However, following last night’s upside surprise in the GDP price deflator, there are concerns about an upside risk to the current consensus estimate for the PCE Index. While a modest upside surprise might not derail the path back to target inflation, it could influence the timing of the first rate cut and the number of cuts expected over the next six months.
In commodities, West Texas Intermediate (WTI) pared initial gains despite heading for its third successive day of gains, while gold edged higher.