Investors and economists will be focusing closely on the government’s latest inflation update on Thursday. The report on personal consumption and expenditures is the Federal Reserve’s preferred measure as it tries to rein inflation back to 2 per cent. The PCE report showed inflation rising at a rate of 3 per cent in June and the July report is expected to show it rose slightly to 3.3 per cent. Overall, it’s down from a high of 7 per cent a year ago.
Investors closed last week relieved that Fed Chair Jerome Powell said the central bank would “proceed carefully” on interest rates.
“The general consensus is that we’re getting closer to the end of the interest rate hiking cycle,” said Brian Price, head of investment management for Commonwealth Financial Network.
The central bank has already raised its main interest rate to the highest level since 2001 in its drive to grind down high inflation. That was up from virtually zero early last year. The Fed held rates steady at its last meeting, but has said it could raise rates again if it considers it necessary to fight persistent inflation.
Wall Street is betting that the Fed will hold rates steady again at its September meeting, according to CME’s FedWatch tool. Bets are nearly evenly split, though, on whether it will raise rates one more time before 2023 closes.
Powell on Friday said upcoming decisions will be based on what incoming data reports say about the economy.
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Bond yields were mixed. The yield on the 10-year Treasury slipped to 4.22 per cent from 4.24 per cent late Friday. The yield on the 2-year Treasury, which more closely tracks expectations for the Fed, fell to 5.06 per cent from 5.08 per cent late on Friday.
Markets in Asia rose broadly. China will no longer require a negative COVID-19 test result for incoming travellers, a milestone in its reopening to the rest of the world after an isolation that began with the country’s borders closing in 2020.
European markets also gained ground.