Moderate Price Increases Signal Potential Fed Rate Cuts

U.S. prices saw moderate increases in June, with the cost of goods dropping even as service prices rose. The improving inflation environment may prompt the Federal Reserve to cut interest rates in September. Consumer spending has slowed, signaling easing demand and price pressures that align with Fed goals.

U.S. prices increased moderately in June as the declining cost of goods tempered a rise in the cost of services, suggesting an improving inflation environment that might position the Federal Reserve to start cutting interest rates in September.

A Commerce Department report on Friday highlighted a slowdown in consumer spending last month. Signs of easing price pressures and cooling demand could reassure Fed officials that inflation is moving toward the central bank's 2% target. 'Inflation continues to moderate and is slowly approaching the Fed's target,' said Jeffrey Roach, chief economist at LPL Financial, predicting that the upcoming Fed meeting would emphasize the slowdown in hiring as a reason for potential rate cuts in September.

The Federal Reserve's next policy meeting is set for July 30-31. Data from the Commerce Department's Bureau of Economic Analysis indicated the personal consumption expenditures (PCE) price index inched up 0.1% last month, following no change in May. Goods prices fell 0.2% after a 0.4% drop in May, with significant decreases in motor vehicles, furnishings, and durable household equipment prices.

(With inputs from agencies.)