PCE inflation data gives market a breather: US consumer price index sends mixed signals

The U.S. Department of Commerce recently announced that the Personal Consumption Expenditures Price Index (PCE) rose by 0.3% in August, compared to an increase of 0.2% in July. This result matched the forecasts of economists surveyed by Reuters. Over the past twelve months, PCE inflation registered a rise of 2.7%, after being at 2.6% in July. Excluding the volatile categories of food and energy, the so-called core PCE price index rose by 0.2% last month, confirming the revised data from July. On an annual basis, core inflation maintained its increase of 2.9% – a crucial factor for the Federal Reserve, which is working towards an inflation target of 2%. This report triggered various reactions in the markets: While the S&P 500 E-mini futures gained 17 points or 0.26%, the yields on U.S. Treasury bonds experienced a slight decline. The yield on the 10-year Treasury bonds fell by 0.6 basis points to 4.178%, while the yield on the two-year securities dropped by 1.4 basis points to 3.649%. In the foreign exchange market, the dollar index weakened by 0.25% to 98.252. Doug Beath from Wells Fargo emphasized that the report showed solid development in the area of consumption and gave the market confidence regarding inflation. Gennadiy Goldberg from TD Securities commented that the economy might not be slowing as quickly as expected, although the price levels largely remained within expectations. Peter Cardillo from Spartan Capital Securities saw no threat to at least one more Fed rate cut before the end of the year in the persistence of inflation despite the new tariffs announced by President Trump. Kim Forrest from Bokeh Capital Partners expressed thoughts on the possible realignment of the Fed, which would continue to keep an eye on both employment data and inflation developments.