To The Moon

On Fri, 29 Aug 2025, US Bureau of Economic Analysis (BEA) will release US’s July 2025 personal consumption expenditure (PCE) readings just before US stock market resumes trading on the last day of the week.

There were questions on why US central bank prefers PCE over CPI report.

Why PCE and not CPI ?

The PCE report, calculated by BEA, covers a broader field.

It includes not only expenses paid directly by households, but also those paid on their behalf, such as healthcare financed by employers or public programs.

Its more flexible methodology better incorporates changes in consumer behavior.

For example, switching from beef to chicken if red meat prices soar.

In other words, the PCE more accurately reflects the reality of American consumption.

This is also the reason why US Federal Reserves prefer it over the CPI report.

July 2025 Forecast.

The Federal Reserve Bank of Cleveland provides inflation nowcasts including forecasts for both US Personal Consumption Expenditures (PCE) and core PCE inflation rates.

According to their latest estimates updated on 27 Aug 2025:

Headline PCE forecast:

• Monthly : +0.18% vs June PCE of +0.3%.

• 12 months : +2.60% vs June PCE +2.7% (see below for June’s inflation)

Core PCE forecast:

• Monthly : +0.26% vs June Core PCE of +0.2%.

• 12 months : +2.89% vs June Core PCE +2.9%. (see above)

Overall, it looks like July’s inflation are marginally “lower” across the board, when compared to June 2025.

If this becomes true, will the pleasantly surprising results:

• Fuels US market rally on Friday and in the coming weeks ?

• Confirms interest rate cut at the next September 2025 FOMC meeting ?

S&P 500 Performances.

22 Aug 2025 - 28 Aug 2025

Between last Fri, 22 Aug to Thu, 28 Aug, the $S&P 500(.SPX)$ index climbed to new record highs, closing above the 6,500 mark for the first time and marking its 20th record close of 2025.

• It posted a +0.32% gain on 28 Aug 2025, closing at 6,501.86, up nearly +1.0% over the last 3 trading days and rising 4 out of the 5 trading sessions.

• The index's rally was characterized by steady gains, notching its largest 3-day gain since 26 Aug 2025.

• The strong performance marks a climb of +16.27% over the past 12 months and more than +30% from the closing low in April 2025.

US market rally comes as Trump’s tariffs seems to be gaining an upper hand against its EU trading partner. (see above)

On Thu, 28 Aug 2025, the European Commission proposed to remove duties on imported US industrial goods in exchange for reduced US tariffs on European cars, a key part of the trade agreement the EU-US struck in July 2025.

This effectively gives US goods ‘free access” to EU market less tariffs to be levied.

Any way you look at it, it is a win-win for US, both imports and its exports, just that import tariffs are likely to be passed along to US consumers in the form of higher prices.

September Interest Rate Cut.

A lower PCE figure would likely reinforce perceptions of cooling demand and economic growth, providing ammunition for rate cut proponents within the Fed.

But, if inflation metrics remain elevated, some FOMC members may still resist cutting rates, keeping prospects uncertain.

Latest CME Fedwatch tool estimates suggest an 85.2% probability of a cut of -0.25%, contingent on factors of inflation and the job market, the Fed’s dual mandates. (see below)

So far, the Cleveland Nowcasting forecasts have err on the ‘conservative’ side of readings, hence the probability of a cooler than June 2025 inflation readings seem plausible.

Looking back at Fed chair Jerome Powell’s speech at last Fri, 22 Aug 2025 Jackson Hole summit, he did signal that the Fed is considering an interest rate cut at the FOMC’s September meeting, citing rising risks to the labour market as a potential reason to ease policy.

With all the key signs falling into places, is it any wonder that Wall Street will see to US market panning higher this Friday and maybe into next week as well ? What do you think ?

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• Do you think US 3 major indexes will continue to climb higher on a cooler July PCE readings ?

• Do you think it is a “Buy” in a rallying market, or a “Sell” ?

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