Additional Coverage:
- Core inflation rate watched by Fed hit 2.8%, delayed September data shows, lower than expected (cnbc.com)
Inflation Cools More Than Expected in September, Paving Way for Potential Fed Rate Cut
WASHINGTON D.C. – A key inflation measure in September came in lower than anticipated, according to a report from the Commerce Department released Friday. The delayed figures, a consequence of the recent government shutdown, are seen by many as a “green light” for the Federal Reserve to consider lowering interest rates.
The core personal consumption expenditures (PCE) price index, which excludes the more volatile food and energy sectors, showed a modest 0.2% monthly increase. The annual rate for core PCE registered at 2.8%, a tenth of a percentage point lower than the Dow Jones consensus and a slight dip from August’s 2.9%.
Meanwhile, the overall PCE, including food and energy, increased by 0.3% for the month, with its annual inflation rate also settling at 2.8%. While this monthly figure was in line with expectations, the annual rate marked a 0.1 percentage point rise from August.
Federal Reserve officials closely monitor the PCE price index as their primary tool for assessing inflation, with the core measure often considered a more accurate gauge of long-term trends.
“The slightly stale September inflation report shows that prices remained reasonably stable despite tariffs and healthy consumer spending,” noted Scott Helfstein, Global X’s head of investment strategy. “This probably provides further air cover for the Fed to cut rates in December.”
Goods prices saw a 0.5% surge for the month, attributed in part to the ongoing impact of President Donald Trump’s tariffs, while services prices increased by a more modest 0.2%. Food prices rose by 0.4%, and energy prices saw a 1.7% uptick. The report also indicated that the personal savings rate remained stable at 4.7% in September, unchanged from August.
The release of these economic indicators was postponed by several weeks due to the government shutdown, which temporarily halted all data collection and economic reporting.
Beyond inflation, the report offered insights into income and spending habits. Personal income rose by 0.4% in September, exceeding forecasts by 0.1 percentage point, while personal spending increased by 0.3%, falling 0.1 percentage point below expectations.
Following the report’s release, stock markets saw additional gains as traders increasingly anticipate a quarter-percentage-point interest rate cut from the Fed during its upcoming rate decision announcement on Wednesday. Odds of a rate cut next week remained high at 87.2%, according to the CME Group’s FedWatch gauge.
While the September data is backward-looking, it represents the final price reading the Fed will have before its crucial monetary policy meeting. However, policymakers remain notably divided on the appropriate next steps for interest rates. One faction within the Federal Open Market Committee (FOMC) advocates for further cuts to preempt potential weaknesses in the labor market, while another group expresses concerns about persistent inflation threats, arguing for maintaining rates in a more restrictive position.
Recent labor market indicators present a mixed picture, with some private data suggesting a slowdown in hiring and an increase in layoffs. Conversely, Department of Labor data last week showed a decline in initial unemployment benefit claims.
In a separate economic development Friday, consumer sentiment for early December was reported to be slightly better than expected. The University of Michigan’s consumer survey registered at 53.3, a 4.5% increase from November and surpassing Wall Street estimates of 52. Inflation expectations also saw a decline, with the one-year outlook falling to 4.1% and the five-year outlook at 3.2%, both reaching their lowest levels since January.