The Federal Reserve's preferred measure of inflation held steady in June, data showed Friday, but softening trends in income and spending will likely strengthen the case for a fall rate cut.
The Bureau of Economic Analysis' PCE price index report showed core prices rose at a 2.6% annual rate last month, matching last month's reading but still modestly higher than Wall Street's forecast of 2.5%.
Core pressures, which strip out volatile food and energy prices, rose 0.2% on the month, a faster pace than May's 0.1% increase and again just above Wall Street's consensus estimate.
Markets are focused on the reading of core PCE inflation, which the Fed sees as a more accurate representation of overall price pressures as it incorporates changes in consumer spending patterns.
Meanwhile, the headline inflation index held at an annual rate of 2.5%, in line with Wall Street's forecast and below the 2.6% posted in May. Prices rose 0.1% on the month, the BEA said, following an unchanged reading in May.
The BEA also noted that personal income in June rose 0.2%, below the revised pace of 0.4% in May, reflecting some weakness in the labor market. Spending slowed to a 0.3% increase compared with a 0.4% rise in the previous month.
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stocks were broadly unchanged following the release of the inflation data, with futures contracts linked to the S&P 500 suggesting a 42-point gain at the open and the Dow Jones Industrial Average pricing in a 245-point gain.
Benchmark 10-year bond yields fell 2 basis points to 4.221% after the data was released, while 2-year bonds fell 2 basis points to 4.416%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, rose 0.06 percent to 104.417.
CME Group's FedWatch now suggests just a 7% chance of a Fed rate cut next week, but estimates the odds of a quarter-point reduction in September at around 90%.
Earlier this month, the Commerce Department's consumer price index (CPI) for June was pegged at an annual rate of 3%, down from 3.3% the previous month and matching three-year lows.
On a monthly basis, price pressures fell 0.1% from May, one of the biggest declines in more than three years, thanks in part to a 4% decline in gasoline prices.
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