The financial world will be glued to their screens this Thursday as the Federal Reserve’s favored inflation indicator, the Personal Consumption Expenditures (PCE) price index, is set to be released at 8:30 a.m. ET. This report holds significant weight for investors and policymakers alike, potentially shaping the trajectory of interest rates and influencing market sentiment for months to come.
The prevailing hope is that the data will reinforce the current disinflationary trend, providing further justification for the Federal Reserve to continue its course of rate cuts in 2024 and beyond. Market expectations currently indicate a near-certainty of a rate cut at the Fed’s upcoming meeting next week, according to the CME FedWatch tool. However, the December rate decision remains more uncertain, with market-implied odds suggesting a roughly 70% chance of another quarter-point cut.
What Do Wall Street Economists Expect?
The consensus among economists is that the headline PCE inflation rate will ease to 2.1% year-over-year in September, marking a decrease from the 2.2% recorded in August. On a month-over-month basis, the headline PCE inflation is projected to see a slight uptick to 0.2%, up from 0.1% in the previous month.
However, it’s the core PCE price index—excluding volatile food and energy prices, which the Fed closely monitors—that will likely grab the most attention. Economists anticipate a fall to 2.6% year-over-year from 2.7% in August. On a monthly basis, core PCE is projected to see a more significant increase, rising to 0.3% in September from 0.1% in August.
What Economists Are Saying
Jeffrey Roach, Chief Economist at LPL Financial, emphasizes the disinflationary trend observed throughout the third quarter, suggesting that this strengthens the case for Fed cuts at both the November and December meetings. “Inflation eased considerably throughout Q3,” Roach stated, “which increases the odds the Fed will cut at both of the upcoming meetings this year.”
Bank of America’s U.S. economist, Shruti Mishra, offers a more cautious perspective. Mishra highlights that core PCE inflation in Q3 was actually slightly stronger than anticipated, which could indicate an upward revision to prior months (July and August) or a more robust September. Bank of America projects a 0.2% monthly increase in core PCE, keeping the three-month annualized rate at a low of around 2.1% or 2.2%.
