Fed cautiously optimistic: Inflation data and interest rate decisions in focus

The latest report from the U.S. Department of Commerce reveals a slight acceleration in the Federal Reserve's preferred inflation measure in August. The Personal Consumption Expenditures (PCE) index rose by 2.7% year-on-year, an increase from 2.6% in July and the highest growth since February. Excluding the volatile food and energy prices, the so-called core PCE inflation recorded an increase of 2.9% compared to August of the previous year, consistent with July, which met the expectations of forecasters. The monthly results showed a price increase of 0.3% from July to August, an increase compared to a 0.2% rise in the previous month. In contrast, core inflation recorded a stable increase of 0.2%, consistent with July. Additionally, private consumption increased by 0.4%, driven by strong growth of 0.7% in spending on goods, while spending on services, such as travel and dining out, rose by only 0.2%. Incomes rose by 0.4%, as in the previous month. For self-employed individuals and entrepreneurs, incomes increased by 0.9% for the second consecutive time. Despite the declining inflation, which prompted the Fed to implement eleven interest rate hikes in recent years, annual price increases remain above the central bank's 2% target. Recently, the Fed lowered the interest rate for the first time this year to support the labor market. However, it is cautious about further rate cuts, waiting for the impact of President Donald Trump's import duties on inflation and the economy. Trump, who urges the Fed to lower rates more aggressively, has repeatedly called Fed Chairman Jerome Powell "too late" and an "idiot," claiming there is "no inflation." Trump's efforts to remove Fed Governor Lisa Cook in order to gain greater influence over the central bank are now under legal scrutiny. Cook is fighting her dismissal and is facing a Supreme Court decision that will determine her continued employment while the proceedings are ongoing. The Fed prefers the PCE inflation measure introduced on Friday over the better-known Consumer Price Index because it accounts for changes in consumer purchasing behavior amid price spikes, such as the switch to cheaper store brands.