Citi(US:C)2025-07-01 00:40Investment Rating - The report suggests a dovish outlook for the Federal Reserve, indicating potential rate cuts in September due to weak consumer spending and subdued core PCE inflation [1][8]. Core Insights - Consumer spending has shown signs of persistent weakness, particularly in services, with a nominal increase of only 0.1% MoM and flat real terms, leading to an overall decline in personal spending [5][7]. - Core PCE inflation increased by 0.179% MoM, slightly above expectations, but still subdued enough to support the case for rate cuts [4][8]. - The report highlights a significant decline in travel-related spending, particularly in air travel and hotel accommodations, which have seen declines every month this year [7][8]. Summary by Sections Consumer Spending - Personal spending fell by 0.1% MoM in nominal terms and 0.3% in real terms, with goods spending declining by 0.8% MoM [5]. - Services spending showed unexpected weakness, with a nominal increase of only 0.1% MoM and flat in real terms, indicating a broader trend of reduced consumer demand [5][7]. Inflation Metrics - Core PCE inflation was reported at 0.179% MoM, slightly stronger than consensus but still indicative of a soft inflation environment [4][8]. - The report suggests that weak consumer demand limits the ability of firms to pass through tariff price increases, reducing the risk of broad-based inflation [8]. Employment Implications - The report indicates that weaker consumer demand could lead to softer hiring, raising downside risks to the Federal Reserve's employment mandate [8].