The Federal Reserve’s preferred measure of underlying inflation posted its biggest monthly gain since April — bolstering the case for a slow rate cut less than a week before the central bank meets to decide its next move. .
The core personal consumption expenditures price index (PCE), which excludes volatile food and energy prices, rose 2.7% in September from a year earlier.
That was ahead of economists’ forecast of 2.6% growth and a 0.3% increase from August, representing a larger monthly gain than the previous month.
PCE showed the overall rate of increase in prices of goods and services last month was 2.1% – the lowest since the start of 2021, matching economists’ estimate of 2.1% year-on-year.
The figures are the latest in a series of surprisingly strong economic data that could prompt the Fed to take a more cautious approach to rate cuts after cutting its key lending rate by half a percentage point last month.
Quincy Crosby, chief global strategist at LPL Financial, said, “The year-over-year core PCE print increased by 2.7% indicating that the Fed still has a tough time in this last mile to reduce inflation and declare victory.” On the way.” statement.
The Fed, led by Chairman Jerome Powell, will need to take a gradual approach to lowering ratings based on resilient consumer spending, higher wages from a series of successful strikes and a solid labor market, Crosby said.
“Furthermore, an almost obvious narrative is that the election – rather than providing a sense of certainty to the market – will do exactly the opposite, driving volatility significantly higher,” Crosby said.
September inflation data shows continued pressure on prices.
Prices of services excluding housing and energy rose 0.3%.
Commodity prices excluding food and energy rose 0.1%.
Food prices rose 0.4%, the most since the beginning of the year.
The Dow Jones Industrial Average was down 174 points at 41,967 in early trading Thursday.
Treasury yields and the dollar were also lower after the release.
The central bank is expected to cut rates again at the conclusion of its Nov. 6-7 policy meeting, with most economists expecting a small, quarter-point cut.
Bill Adams, chief economist at Comerica Bank, said in a statement: “Yes, prices are high, but the trend has changed – incomes are again outpacing price rises, and over time this is cost-of-living increases for household budgets.” Will make it less stressful.” ,
Adams said the income and expense outlook for October is likely unclear due to the impact of the hurricane and a massive dockworkers’ strike at East Coast ports.
“The Fed will likely be less confident in October’s economic data given the obvious reasons to fear temporary distortions,” Adams said. “So they will likely cut the federal funds rate by a quarter percentage point in a post-election decision next week and look to December data to get a clearer picture of how the economy is performing after the storm.”
federal Reserve Interest rates were cut in September By a massive cut of half a point to bring down inflation. Monthly inflation of about 0.17% would be in line with the Fed’s annual 2% rate target.
The Fed is also hoping to see low unemployment rates before cutting interest rates in the future.
The Bureau of Labor Statistics is scheduled to release its October jobs report on Friday.
Expectations for October’s payroll numbers are already relatively low.
The devastating hurricane that devastated entire southeastern states – and left Americans unemployed – could worsen these results.
A bad report could undermine the Fed’s success with interest rate cuts and stave off the economy’s so-called soft landing, which is a slowdown in growth, without provoking a recession.
The probability of a less aggressive quarter-point interest rate cut at the central bank’s November meeting is 94%, According to CME Group’s FedWatch tool,
Meanwhile, consumer sentiment rose for the third consecutive month to its highest level since April University of Michigan Consumer Survey,
The survey said consumer outlook has improved due to a modest improvement in purchasing of consumer goods due to the decline in interest rates.
But the upcoming presidential election is weighing heavily on consumer expectations, University of Michigan economist Joan Su saidSurvey Director.
“All year long, consumers have told us repeatedly that the trajectory of the economy depends on who becomes the next president,” HSU said in a statement. “Given the close nature of the presidential race, many consumers will be updating their expectations for the economy after the election is resolved, and sentiment may remain somewhat volatile in the coming months as consumers form their views on That’s what the next president will look like. ,
