The latest data on the Federal Reserve's preferred inflation gauge showed that U.S. prices rose less than expected in August, which could push the Fed to continue cutting interest rates further throughout the rest of this year and next.
The core personal consumption expenditures (PCE) price index, which excludes food and energy prices, is a closely watched indicator of the Federal Reserve. It rose 0.1% month-on-month in August, lower than Wall Street's expectations of 0.2% and 0.2% in July. In August, core PCE prices rose 2.7% year-on-year, in line with Wall Street expectations, but higher than 2.6% in July.
The overall PCE year-on-year growth rate slowed to 2.2%, lower than the expected 2.3%; the month-on-month growth rate slowed to 0.1%, unchanged.
Other data showed that U.S. consumer spending rose modestly in August, suggesting the economy retained some strong momentum in the third quarter while inflationary pressures continued to ease. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month after an unrevised 0.5% increase in July. That was lower than market expectations for a 0.3% increase.
After the data was released, gold rose slightly and traded around $2,670, and the US dollar index approached the 100 mark.
U.S. short-term interest rate futures rose after the PCE inflation data, reflecting rising market expectations for further Fed rate cuts. Interest rate futures traders believe that the probability of a 50 basis point rate cut by the Federal Reserve in November is slightly higher than that of a 25 basis point cut - the probability of a 50 basis point cut in November is about 54%, while the probability of a 25 basis point cut is still as high as 46%.
In either case, traders are betting that the Fed's policy rate, currently between 4.75% and 5.00%, will be cut by 75 basis points by the end of the year.
The report is the first inflation data released by the Fed after it cut interest rates by 50 basis points on September 18. Powell noted at a press conference after the rate cut that the Fed is now "more confident" about the path of inflation falling toward its 2% target.
Powell believes that further cooling of the labor market is now as worrying to the Fed as inflation. Powell said, "The upside risks to inflation have indeed declined, and the downside risks to employment have increased. Because we have been patient and have not taken action to cut interest rates - even though inflation has declined, I think we are now in a very good position to manage the risks to our two goals."
Recent reports suggest the economy is still expanding at a healthy pace. On Thursday, the U.S. government confirmed its previous forecast that the U.S. economy grew at a healthy 3% annualized rate in the second quarter, driven by strong consumer spending and business investment.
Several separate economic barometers were also reassuring. The number of Americans filing for unemployment benefits fell to its lowest level in four months last week.
The article is forwarded from: Jinshi Data
