The Personal Consumption Expenditure (PCE) Price Index for August, the Federal Reserve's favored inflation measure, issued on Friday, showed mixed outcomes and supported investor uncertainty over potential adjustments in the Fed's stance on interest rates.
PCE By The Numbers: Headline PCE rose from 3.4% in July to 3.5% year-over-year in August, meeting the expected 3.5% and recording the second consecutive monthly increase. Month-over-month, headline PCE ticked up 0.4%, up from July's 0.2%, and fell short of the 0.5% expectation.
Core PCE, which excludes energy and food items, fell from 4.2% in July to 3.9% year-over-year in August. This confirmed market predictions and represented the most modest core inflation reading since September 2021. Month-over-month core PCE fell to 0.2%.
The Bureau of Economic Analysis reported a 0.4% rise in personal income in August, meeting market consensus and following a 0.2% increase in July. Personal spending also saw a 0.4% month-over-month increase, following an adjusted 0.9% rise in July.
Post-PCE-release, traders estimate with 85% probability that the Fed will maintain interest rates in the upcoming November FOMC meeting.
What do the economists think?
Quincy Krosby, Chief Global Strategist For LPL Financial: Krosby noted that the 10-year Treasury yield is slightly lower. This aids the equity futures market. Despite progress, inflation remains at 3.9%, above the Fed's 2% target for "price stability."
"The Fed must be pleased with the overall direction of the PCE report, but declaring victory on quelling inflation would be premature," Krosby said.
She warned of rising oil prices influencing broader economic prices.
Jeffrey Roach, Chief Economist For LPL Financial: Roach pointed out that the softer-than-expected rise in core inflation, coupled with a fall in real disposable income for the second consecutive month, potentially hints at a consumer slowdown in the final quarter of the year.
"Shrinking real disposable income is a harbinger that consumer spending will likely slow in the coming quarter," Roach said.
The Chief Economist noted that uncertainty stemming from elevated energy prices, potential government shutdown, and resumption of student loan payments will likely lead to the Fed opting for a pause in the upcoming meeting.