Lower PCE Inflation Data Reduces Likelihood of October Rate Hike
The Bureau of Economic Analysis reported August inflation figures lower than expected, prompting Federal Reserve officials to signal a lack of urgency for further interest rate hikes.
The Federal Reserve System is weighing its next monetary policy move after the Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) price index rose 0.3% in August. The annual headline PCE rate stood at 3.4%, while core inflation—excluding food and energy—rose 0.2% monthly to a yearly rate of 3.0%. Both figures came in lower than market expectations, though they remain above the central bank's 2% target.
The cooler core data was partly attributed to retroactive methodology revisions by the Bureau of Economic Analysis regarding legal, software, and portfolio management services. However, SuperCore inflation—services excluding shelter—surged 0.4% monthly, driven by record costs for cell phone plans and education. Other economic indicators presented a mixed landscape: second-quarter GDP growth was revised upward to 2.2% and consumer spending rose 0.9% in August, while the personal savings rate fell to 4.1%, the lowest level since November 2022.
Federal Reserve officials previously expressed concern over persistent inflation. Governor Michael C. Barr suggested further policy adjustments might be needed to ensure inflation returns to target. Conversely, New York Fed President John C. Williams noted a deceleration in housing services and stated there is no immediate urgency for further action. These lower-than-expected readings have decreased the probability of an interest rate hike at the October 27-28 meeting, following a recent benchmark increase to a range of 3.75%-4.00%. Meanwhile, the Conference Board reported that consumer confidence fell to 81.9 in September, a nearly 12-and-a-half-year low.
