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The Federal Reserve’s preferred measure of underlying inflation posted its biggest monthly gain since April — bolstering the case for slower rate cuts less than a week ahead of the central bank’s meeting to decide its next moves.
The core personal consumption expenditures price index (PCE), which excludes volatile food and energy prices, rose 2.7% in September versus a year earlier. That was ahead of economists’ forecast for a 2.6% increase and up 0.3% from August, representing a larger monthly gain than the month before.
The PCE showed that the overall rate at which prices rose for goods and services last month was 2.1% — the lowest since early 2021, matching economists’ estimates of 2.1% year-over-year.
The Federal Reserve slashed interest rates in September by an outsize half-point cut on easing inflation. Monthly inflation of roughly 0.17% would be consistent with the Fed’s goal of an annual 2% rate.
The Fed is also hoping to see low unemployment rates ahead of any future interest rate cuts.
The Bureau of Labor Statistics is due to release the October jobs report on Friday.
Expectations for October’s payrolls number are already relatively low. Destructive hurricanes that wreaked havoc across the Southeastern states — and left Americans jobless — could further dampen these results.
A poor report could discount the Fed’s success with interest rate cuts and dispel the economy’s so-called soft landing, which is a slowdown in growth without enflaming a recession.
Odds of a less aggressive quarter-point interest rate cut at the central bank’s November meeting stand at 94%, as per the CME Group’s FedWatch Tool.
Dow Jones futures dropped 0.5% ahead of the bell and the tech-heavy Nasdaq 100 futures fell 0.7% in premarket trading.
Meanwhile, consumer sentiment rose for the third month in a row to its highest reading since April, according to the University of Michigan’s Survey of Consumers.
Modest improvements in buying consumer goods thanks to easing interest rates improved consumer outlook, the survey said.
But the upcoming presidential election looms large over consumer expectations, said University of Michigan economist Joanne Hsu, director of the surveys.
“All year, consumers have repeatedly told us that the trajectory of the economy hinges 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 of the economy after the election is resolved, and sentiment may be somewhat unstable in the months ahead as consumers form their views on what the next presidency will look like.”
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