PCE Data Cools Further, Yet Big Fed Rate Cut Bets Slightly Prevail

The U.S.August PCE data showed a lower-than-expected month-on-month growth rate,which could push the Federal Reserve to continue further rate cuts for the remainder of this year and next year.

The latest data from the Federal Reserve's preferred inflation indicator showed that the price increase in the United States in August was lower than expected,which could push the Federal Reserve to continue further rate cuts for the remainder of this year and next year.

The core personal consumption expenditure (PCE) price index,which excludes food and energy prices and is closely watched by the Federal Reserve,rose by 0.1% month-on-month in August,lower than the 0.2% expected by Wall Street and the 0.2% in July.The core PCE price in August rose by 2.7% year-on-year,in line with Wall Street's expectations,but higher than the 2.6% in July.

The overall PCE year-on-year growth rate slowed to 2.2%,lower than the expected 2.3%; the month-on-month growth rate remained unchanged at 0.1%.

Other data showed that U.S.consumer spending grew moderately in August,suggesting that the economy retained some strong momentum in the third quarter,while inflationary pressures continued to ease.Consumer spending,which accounts for more than two-thirds of U.S.economic activity,rose by 0.2% last month,compared to an unrevised increase of 0.5% in July.It was lower than the market forecast of a 0.3% increase.

After the data was released,gold rose slightly and traded near $2670,and the U.S.dollar index approached the 100 mark.

U.S.short-term interest rate futures rose after the PCE inflation data was released,reflecting the market's increased expectations for further rate cuts by the Federal Reserve.Interest rate futures traders believe that the possibility of the Federal Reserve cutting rates by 50 basis points in November is slightly higher than cutting rates by 25 basis points - the possibility of a 50 basis point cut in November is about 54%,while the possibility of a 25 basis point cut is still as high as 46%.

However,in either case,traders are betting that the policy rate will be lowered by 75 basis points before the end of the year,with the Federal Reserve's current policy rate between 4.75% and 5.00%.

This report is the first inflation data released by the Federal Reserve after the 50 basis point rate cut on September 18.Powell pointed out at the press conference after the rate cut decision that the Federal Reserve is now "more confident" in the path of inflation towards the 2% target.

Powell believes that the further cooling of the labor market is now as worrying to the Federal Reserve as inflation.Powell said,"The risk of inflation going up has indeed decreased,and the risk of employment going down has increased.Because we have been patient and have not taken action to cut rates - although inflation has decreased,I think we are now in a very favorable position to manage the risks of our two goals."Recent reports indicate that the economy is still expanding at a healthy pace.On Thursday,the U.S.government confirmed previous forecasts that the U.S.economy grew at a healthy annualized rate of 3% in the second quarter of this year,driven by strong consumer spending and business investment.

Several individual economic barometers are also reassuring.Last week,the number of U.S.jobless claims fell to the lowest level in four months.