Key Inflation Data Released
The Federal Reserve's preferred inflation indicator, the core Personal Consumption Expenditures (PCE) price index, showed slower growth than anticipated in September. This development is placing additional pressure on expectations for interest rate cuts ahead of the Federal Open Market Committee's (FOMC) upcoming policy meeting.
The Commerce Department reported on Friday that the core PCE, which excludes volatile food and energy prices, increased by 0.2% on a monthly basis and 2.8% year-over-year. The annual reading represents a decrease from the 2.9% recorded in August and was 0.1 percentage point below forecasts. The monthly rate met the consensus expectations of Dow Jones analysts.
Concurrently, the headline PCE price index also saw a monthly increase of 0.3% in September, bringing the overall annual rate to 2.8%. This figure aligned with analyst predictions but marked a 0.1 percentage point rise from the August reading.
These figures were released by the Bureau of Economic Analysis, which experienced delays in data collection and publication due to the U.S. government shutdown.
Federal Reserve's Stance and Market Reactions
The Federal Reserve utilizes the PCE price index, particularly its core component, as its primary metric for formulating monetary policy related to inflation. Fed officials consider the core PCE to be a more accurate reflection of long-term price trends.
The September PCE data represents the final inflation report available to the Fed before the FOMC's policy meeting concludes next Wednesday.
Market participants have reacted swiftly to the new data. Following the release, stock markets experienced gains, and futures markets priced in a high probability of a quarter-point interest rate reduction. However, divisions persist among Fed policymakers.
Some members of the FOMC advocate for continued rate reductions to support a weakening job market. Conversely, others express concerns about persistent inflation and favor maintaining tighter monetary policy.
Mixed Economic Signals
Economic indicators related to the labor market have presented a mixed picture. While some private sector reports suggest an increase in layoffs, data from the Labor Department indicated a drop in new jobless claims last week, highlighting the complexity of the current employment landscape.
Consumer behavior also remains a key factor. The report included figures on personal income and spending. Personal income rose by 0.4% in September, exceeding forecasts by 0.1 percentage point. Consumer spending increased by 0.3%, falling short of projections by 0.1 percentage point.
Sector-Specific Price Movements
An examination of specific categories reveals that prices for goods surged by 0.5% during the month. Analysts attribute this increase, in part, to the ongoing impact of tariffs on supply chains, which are driving up the cost of consumer goods. Prices for services showed a more moderate increase of 0.2%.
Food prices climbed by 0.4%, and energy prices saw a significant jump of 1.7%, indicating that these sectors have not yet experienced a cooling of price pressures. Despite these rising costs, the personal savings rate remained stable at 4.7%, unchanged from August.
Consumer sentiment also appears to be holding steady. A separate report released on Friday indicated that the University of Michigan's consumer sentiment index for early December reached 53.3, an increase of 4.5% from November and surpassing the Wall Street forecast of 52.
Concerns about inflation have also diminished. The one-year inflation outlook decreased to 4.1%, and the five-year outlook fell to 3.2%, both representing the lowest levels recorded since January.