Skip to main content

Fed Inflation Gauge Speeds Higher In August, Adding To Rate Hike Bets

The Fed's preferred inflation gauge topped Street forecasts Friday, snuffing out hopes of a near-term change in the central bank's rate hiking plans.

The Federal Reserve's preferred measure of U.S. inflation sped higher in August, data indicated Friday, erasing investor hopes that the central bank will back away from its plans for further, and possibly deeper, near-term rate hikes. 

The August core PCE Price Index rose 4.9% from last year, and 0.6% on the month, the Bureau of Economic Analysis reported, with both figures coming in firmly ahead of Wall Street forecasts.

The headline PCE index rose 0.3% on the month, but eased modestly to 6.3% on the year following the first month-on-month decline -- recorded last month -- since April of 2020.

Personal income rose by 0.3%, while personal spending rose by 0.4%, the BEA noted, well ahead of the Street consensus forecast of a 0.2% advance.

U.S. stocks pared earlier gains following the data release, with futures contacts tied to the Dow Jones Industrial Average indicating a 40 point opening bell gain and those tied to the S&P  500 priced for a modest 10 point gain. 

Benchmark 10-year U.S. Treasury bond yields rose 3 basis points to 3.724% following the data release, while 2-year notes added 2 basis point to 4.181%.

The CME Group's FedWatch tool is showing a 59.5% chance of a 75 basis point rate hike in November, up from around 52% prior to the PCE data release, with bets on a 50 basis point rate hike to round out the year in December pegged at 55.7%.