Traders on Wall Street found themselves facing an unwelcome Halloween surprise on Thursday as the Federal Reserve’s preferred gauge of inflation, the Personal Consumption Expenditures (PCE) price index, showed a concerning uptick. This news could cast a shadow over the anticipated back-to-back interest rate cuts in the final two monetary policy meetings of the year.
The PCE price index climbed 2.1% year-over-year in September, aligning with analyst forecasts. However, it was the core PCE index — which strips out volatile food and energy prices and offers a clearer picture of underlying inflation pressures — that sparked concern. It rose 2.7%, slightly exceeding the predicted 2.6%. This stronger-than-expected core inflation reading could keep the Fed on high alert as they carefully consider their next policy moves.
While the market widely expects a 25-basis-point rate cut at the upcoming Fed meeting next week, as indicated by the CME FedWatch tool, the possibility of another cut in December might face some headwinds. This is largely attributed to the lingering concerns about inflation.
Key Takeaways from the September Personal Income and Outlays Report:
* The PCE price index increased by 0.2% month-over-month in September, matching analysts’ expectations and accelerating from the previous month’s 0.1% rise.
* The core PCE price index also saw a similar rise of 0.3% from the previous month, accelerating from 0.1% and matching estimates.
* On an annual basis, the headline PCE price index rose 2.1%, down from August’s upwardly revised 2.3%. The core PCE price index, however, remained steady at 2.7% year-over-year, consistent with August’s figure.
* Personal income experienced a growth of $71.6 billion, or 0.3%, in September, aligning with expectations and outperforming the previous month’s 0.2% increase.
* The personal saving rate eased from 4.8% to 4.6%, with personal savings decreasing from $1.05 trillion to $1 trillion in September.
* Personal spending saw a substantial rise of $105.8 billion, or 0.5%, surpassing estimates of 0.4% and accelerating from the previous month’s 0.2% growth.
The continued persistence of inflation, as evidenced by the recent PCE data, adds a layer of complexity to the Fed’s decision-making process. While the market anticipates a rate cut next week, the path forward for December remains uncertain. The Fed will be closely scrutinizing upcoming economic data to gain a clearer picture of inflation trends and their potential impact on future policy adjustments.
