PCE Price Index Update

(Reuters) – The Commerce Department's personal consumption expenditures (PCE) price index, a key metric for the Federal Reserve, rose 0.2% in September, following an unrevised 0.1% increase in August. Economists had anticipated PCE inflation to climb by 0.2%.

In the year leading up to September, the PCE price index saw a year-on-year increase of 2.1%, marking the smallest rise since February 2021, down from 2.3% in August. When excluding food and energy costs, the PCE price index rose 0.3% in September after a 0.2% increase in August, with a year-on-year rise of 2.7%. The Fed monitors PCE price measures to achieve its 2% inflation target, and current progress may enable a 25 basis point rate cut during its upcoming meeting.

Last month, the U.S. central bank initiated a policy easing cycle, implementing a half-percentage-point rate cut, the first reduction in borrowing costs since 2020.

MARKET REACTION:

• STOCKS: U.S. stock futures extended earlier declines, down by 0.66%, indicating a weak opening for Wall Street.
• BONDS: The U.S. Treasury 10-year yield decreased to 4.2844%, while the two-year yield eased to 4.1682%.
• FOREX: The dollar index fell by 0.2%, slightly softer than prior to the data release.

COMMENTS:

Michael Landsberg, Chief Investment Officer, Landsberg Bennett Private Wealth Management:
"While Thursday's core PCE barely moved higher, we anticipate this is just the start of several months of increasing inflation. Investors should brace for a re-acceleration of inflation by late 2024 and early 2025. We expect the Fed to cut rates by 25 basis points in November, but may pause further reductions in December due to inflation concerns."

Peter Cardillo, Chief Market Economist, Spartan Capital Securities:
"Today's data confirmed inflation might slightly rise again, particularly with the core rate continuing to climb. This raises the likelihood of the Fed pausing any rate cuts at the next meeting. While consumption remains strong, evidenced by robust GDP in the third quarter, inflation continues to be a challenge."

Brian Jacobsen, Chief Economist, Annex Wealth Management:
"Real disposable personal income has shown four consecutive months of 0.1% growth. Although spending has increased, it’s shifting towards essential goods like healthcare and housing. While the headline figures appear positive, the underlying details suggest a more cautious consumer environment."