August PCE Inflation Report: Headline Matches Forecasts At 3.5%, Core Falls To 3.9%

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The Personal Consumption Expenditure (PCE) Price Index report for August - the Fed's preferred inflation gauge - released Friday delivered mixed results, keeping investors on edge over the future of Fed's decisions on interest rates.

August PCE Inflation Report: Key Highlights

  • The headline PCE price index increased from an upwardly revised 3.4% in July to 3.5% year-on-year in August 2023, matching the expected 3.5% and marking the second consecutive monthly rise.
  • The month-over-month change in the PCE price index was 0.4%, a notable jump from July's 0.2% increase but below the expected 0.5%.
  • Excluding energy and food items from the basket, the core PCE price index dropped from 4.2% in July to 3.9% year-on-year in August, as expected. It marks the lowest core inflation reading since September 2021.
  • The month-over-month variation in the core PCE price index fell to 0.1%, slightly below both the previous reading and economists' consensus of 0.2%.
Simultaneously, the Bureau of Economic Analysis announced that personal income saw a 0.4% increase in August 2023, aligning with the market consensus and following a 0.2% rise in July. Personal spending also saw a 0.4% month-over-month increase, in accordance with market predictions, and following an upwardly adjusted 0.9% surge in July.

Treasury yields saw a slight decline ahead of New York market open, following weeks of significant increases. The yield on the 10-year note dropped by 4 basis points to reach 4.53%. The US Treasury 10 Year Note ETF (NYSE: UTEN) is down nearly 4% this month.

Following the PCE release, traders assigned an 85% probability to the Fed maintaining interest rates steady the upcoming November FOMC meeting. Market-implied probabilities for the December Fed meeting stand at 67% for no change and 33% for an interest rate hike.