Is this good news for an October rate cut?
The inflation rate as measured by the Personal Consumption Expenditures (PCE) price index was in line with expectations for August.
For the month, the PCE inflation rate increased 0.3%, which was equal to economists’ estimates. It was up from a 0.2% gain in July.
Over the past 12 months, PCE inflation has risen 2.7%, up from 2.6% in July. This was also what economists projected.
Core PCE inflation, excluding food and energy prices, rose 0.2% in August, the same as it was in July. The 12-month core PCE inflation rate was 2.9%, which is the same as July. Personal spending rose 0.6% in the quarter, which was above expectations of 90.5%.
This report is as good as could be expected. The inflation numbers all came in-line with expectations – although a little higher than the prior month – and spending was better-than-expected,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said.
PCE inflation is the Fed’s preferred gauge for determining the path of interest rates. So, will the August report have an impact on the Fed’s thinking?
Poll shows more confidence in October rate cut
The CME FedWatch poll showed that interest rate traders are more bullish on an October cut now after the PCE inflation report came out. Roughly 87% now anticipate a 25-basis point October rate cut, up from 85% yesterday.
The rate of change on inflation is encouraging. The Fed too often uses the term transitory to buttress its arguments when data runs counter to its policy stance—but, in the case of tariffs, they look to have it right,” Jamie Cox, managing Partner for Harris Financial Group, said.
Also, the personal savings rate increased to 4.6%, up from 4.4% in July. It shows that consumers may have a better capacity to absorb tariff costs than previously understood, said Bill Adams, Chief Economist for Comerica Bank.
Inflation continues to run above the Fed’s target but is not yet showing big effects from tariff passthrough,” Adams said. “Like the upward revisions to GDP and smaller trade deficit released yesterday, the latest data make additional rate cuts from the Fed seem less urgent. The Fed will likely still cut the federal funds target a quarter percent at each of the next two meetings, but the decision is no slam dunk.”
Stocks were mostly flat on Friday with the S&P up around 10 points, the Dow up 162 points, and the Nasdaq Composite off 30 points.
The Federal Open Market Committee meets on October 28-29..
