INSTANT VIEW: US inflation rises moderately in June

NEW YORK (Reuters) - U.S. prices rose moderately in June, underscoring an improving inflation environment that potentially positions the Federal Reserve to begin cutting interest rates in September.

The personal consumption expenditures (PCE) price index nudged up 0.1% last month after being unchanged in May, the Commerce Department's Bureau of Economic Analysis said on Friday. In the 12 months through June, the PCE price index climbed 2.5% after rising 2.6% in May.

Excluding the volatile food and energy components, the PCE price index rose 0.2% last month. That followed an unrevised 0.1% gain in May.

MARKET REACTION:

STOCKS: S&P 500 E-minis pare gains modestly after data, last up 0.70%

BONDS: The yield on benchmark U.S. 10-year notes was sightly lower, down about 2 basis points to about 4.22%

FOREX: The dollar index edged lower, at 104.28 vs 104.41 earlier

COMMENTS:

STAN SHIPLEY, MANAGING DIRECTOR, FIXED INCOME STRATEGIST, EVERCORE ISI, NEW YORK

"PCE is a little firmer than expected. It was weak in the goods sector, especially motor vehicle spending because we know what happened to the warm weather. That should rebound in July and August. These are actually good reads for the headline and core. Going forward in the next couple of months, they're going to be higher than this."

"Inflation readings are well-contained overall. As for the Fed, they're looking at long term, like five years and 10 years, and yes, the Fed will be successful at containing inflation at its 2% target. The Fed will probably hold next week. It will be a surprise if they cut next week. They will probably say that they could move in September. The market has some odds of a 50 basis-point cut in September and we think that's overly dovish."

BRET KENWELL, U.S. INVESTMENT ANALYST AT ETORO, PETOSKEY, MICHIGAN

"The June PCE report was mostly in-line with economists’ expectations, while year-over-year core PCE came in just slightly ahead of estimates. Although year-over-year core PCE came in slightly higher than expected, there was nothing in the report that suggests there’s an unexpected reacceleration in inflation. Along with a lower-than-expected CPI report earlier this month and a recent trend of lower inflation figures, this should give the Fed the green light to cut rates later this quarter."

"All eyes will shift to Chair Powell at next week’s Fed meeting, with the hope and expectation that he will set the stage for a rate cut in September. The Fed has been very transparent in recent years, telegraphing its actions well in advance and adding more certainty to the mix, and markets like certainty."

VAIL HARTMAN, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK

"I think that it was a classic relief rally...the upside surprise angst that was instilled based on the quarterly data yesterday was to some extent overpriced, so that's why I think that we had the relief rally and it did bring the three-month annualized rate (for core PCE) down to a year-to-date low of 2.3%, so the more recent trend is building upon the market's confidence that we are on a trajectory that would get us to 2% over the long run. So, I think that this is just another month of good inflation data from the Fed's preferred measure of inflation."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WISCONSIN

"Everybody's waiting to find out if the Fed is going to be confident enough to cut. If this doesn't make the Fed confident enough, nothing will."

"The economy is slowing and if they don't cut it could screech to a halt. They do have some time because certainly there's still some economic momentum but that economic momentum is fading fast. I think they'll cut in September. They could cut on Wednesday, but I don't think they will just because it seems they might want to get a little bit more data, or at least key up a cut. So they might not want to just shift from a hold to a cut without first telegraphing that a cut is coming."

"If this was under Greenspan, or Bernanke, they probably would have cut but Janet Yellen really set the precedent for trying to really enhance that forward guidance. And Powell has taken it to an extreme."

RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW JERSEY 

"Personal income and spending was revised to 0.4%, that's a solid improvement in income and spending with easing inflation. So you've got a pretty nice report here that further emboldens the soft landing narrative."

"After a rough week, on a summer Friday the markets (today) have a chance to bounce higher." 

CHRIS LARKIN, MANAGING DIRECTOR, HEAD OF TRADING AND INVESTING, E*TRADE FROM MORGAN STANLEY, NEW YORK

"Overall, it’s been a good week for the Fed. The economy appears to be on solid ground, and PCE inflation essentially remained steady. But a rate cut next week remains a long shot. And while there’s plenty of time for the economic picture to change before the September FOMC meeting, the numbers have been trending in the Fed’s direction."

(Compiled by the Global Finance & Markets Breaking News team)