The Federal Reserve’s preferred measure of inflation edged higher in August, data indicated Friday, but the overall readings show moderating pressures heading into the autumn months and added to bets on more Federal Reserve rate cuts over the final months of the year.
The Bureau of Economic Analysis’ PCE Price Index report showed that core prices rose at an annual rate of 2.7% last month, just ahead of last month’s reading of 2.6% and matching Wall Street’s forecast.
Core pressures, which strip away volatile food and energy prices, were up 0.1% on the month, compared to July’s 0.2% gain and Wall Street’s consensus estimate of 0.2%.
Markets focus on the core PCE inflation reading, which the Fed considers a more accurate representation of overall price pressures, as it incorporates changes in consumer spending patterns.
The BEA’s headline PCE inflation index eased to an annual rate of 2.2%,, just inside Wall Street’s 2.3% forecast and down from the 2.5% pace recorded in July. Prices were up 0.1% on the month, the BEA said, following a 0.2% reading in July.
The BEA also noted that personal incomes for August rose 0.2%, down from the revised 0.3% pace in July, reflecting some softness in the labor market. Spending slowed to a 0.1% rise compared with the 0.5% gain over the previous month.
Markets are betting that softer inflation data in the coming months will quicken the pace of Fed rate cuts.
Stock futures nudged higher following the inflation data release, with futures contracts tied to the S&P 500 suggesting a 10 point opening bell gain and the Dow Jones Industrial Average called 95 points higher. The Nasdaq is priced for a 40 point bump.
Benchmark 10-year note yields slipped 2 basis points to 3.768% following the data release, while 2-year notes eased 3 basis points to 3.598%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.06% higher at 100.535.
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Earlier this month, the Commerce Department’s CPI inflation report showed headline pressures falling to 2.5% in August, the lowest since February of 2021, but noted that core inflation held at 3.2%, with a modest nudge higher in the monthly reading.
Since then, weekly jobless claims data has surprised to the upside, suggesting a firmer-than-expected labor market that is being buttressed by a surprising solid GDP growth heading into the finals days of the third quarter.
That’s lead to concerns of another leg higher in inflation pressures over the final months of the year.
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That said, the CME Group’s FedWatch continues to reflect the Fed’s dovish signals, and now suggests a 51% chance of another 50 basis point rate hike from the November meeting. The gauge also sees the benchmark Fed Funds rate falling to 4.125% by the end of the year.
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