September PCE figures shouldn’t scare markets 

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One thing that is not spooky this Halloween is the latest PCE report, which showed prices increased as expected and annual inflation inched closer to the Fed’s 2% target. 

So Powell probably isn’t having any nightmares tonight, or at least any inflation-related ones. 

Prices increased by 0.2% month over month, according to the PCE index for September. Annual inflation for the 12 months ended September came in at 2.1%. 

It’s the lowest annual rate since February 2021. August’s annual headline figure came in at 2.3% after an upward revision Thursday, so things are moving in the right direction. 

Core PCE, which excludes volatile food and energy prices, increased 0.3% in September and the annual rate is 2.7% — just a tad higher than analysts had expected, but flat from the reading we got in August. 

The print did little to move the needle on rate cut expectations for November, with fed funds futures markets calling for a 95% chance of a 25-basis point cut, per CME Group data. It’s a bit far out to speculate too much, but markets are less confident that central bankers will opt for another 25bps cut come December, pricing in a 72% likelihood. 

Remember, the latest FOMC projections show interest rates ending 2024 50bps lower than where they currently stand. But, as we’ve written about before, investors have doubts the committee will follow through.

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