The core and headline figures for Personal Consumption Expenditures prices were 0.1%, at or below expectations. The SPX is on track for its first positive September since 2019.
Inflation stayed in its cage last month, the U.S. government reported this morning, reinforcing ideas that the Federal Reserve has runway to sharply cut rates in coming months and pushing Treasury yields lower in early trading. Major stock indexes were flat but primed for another winning week.
Personal Consumption Expenditures (PCE) prices, the inflation indicator watched most closely by the Fed, rose 0.1% on both headline and core readings. Analysts had expected a 0.1% rise in monthly headline PCE and a 0.2% rise in core PCE, which strips out volatile food and energy prices. Both rose 0.2% in July, so the fresh data offered signs of improvement.
Annual PCE of 2.2% was below the 2.3% consensus and not far above 2% level targeted by the central bank.
There were no major surprises, which is a good thing considering the current disinflationary environment. One of the most important aspects is the three-month annualized change, which is still at 2% and indicates that inflation is still on the path to the Fed's target.
Barring steady increases over many months, it's unlikely inflation fears will flare back up in the near term, but PCE and coming September Consumer Price Index (CPI) data could shape expectations around how much the Fed might cut rates the rest of the year. Market participants currently build in 75 basis points of further cuts in 2024 while the Fed's dot plot of projections stands at 50.
After the report, futures trading put chances of a 50-basis point Fed rate cut in early November slightly above 50%, near where it's been most of the week. Hopes for a steep rate cut could assist some of the more rate-sensitive cyclical stocks as well as small caps but might weigh on the dollar.
Before PCE, participants monitored the latest round of economic stimulus from China. The central bank cut its one-week reverse repo rate by another 20 basis points on Friday. Earlier this week, China cut interest rates, and major markets there went on a tear. Hong Kong's Hang Seng Index climbed 13% this week to 17-month highs.
Comments