Progress in curbing inflation slowed in October, but futures investors believe the latest numbers increase the likelihood of another Fed rate cut next month.
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Progress in curbing inflation slowed in October, but not enough to make investors think a December rate cut is impossible.
The Fed’s recommended inflation measure showed annual growth in the prices of goods and services has moved away from the central bank’s 2% target in October.
The annual growth rate of the personal consumption expenditures (PCE) price index was 2.3%, up from 2.1% in October, the Bureau of Economic Analysis said Wednesday.
However, bond market investors took the news in stride as the month-on-month inflation rate was in line with expectations.
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The yield on the 10-year Treasury note, a barometer of mortgage rates, fell 6 basis points on Wednesday, with the futures market tracked by the CME FedWatch tool showing the probability of a Dec. 18 rate cut from 59 percent to 66 percent. This indicates that investors believe that the stock has improved by a percentage. Tuesday is percent.
Annual inflation rate rise
Annual core PCE, which excludes food and energy costs, rose to 2.8% in October from 2.7% in September, the highest since April.
The 0.2% and 0.3% month-on-month increases in PCE and core PCE indexes were in line with forecasters’ expectations.
samuel’s tomb
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said the “significant” increase in core PCE was due to large increases in some variables, such as used car prices and airfares.
“Pricing pressures outside of these volatile sectors remained moderate in October,” Toombs said, adding to other forward-looking forecasts such as turnover and surveys showing fewer companies intending to raise prices. The indicators “suggest that inflation in basic services will continue to decline,” it said. For months. ”
Toombs said forecasters at Pantheon Macroeconomics continue to think November’s PCE data will give the Fed “confidence to lower funds rates for a third consecutive meeting” next month. .
The U.S. Bureau of Economic Analysis also released its second estimate of gross domestic product (GDP) for the third quarter of 2024 on Wednesday, initially predicting the economy would grow at a healthy annual rate of 2.8%, up from 3.0% in the second quarter. The estimate was confirmed.
healthy economic growth
The economy fell into negative growth in the first quarter of 2022, but investors are increasingly confident that the Fed can achieve a soft landing and avoid a recession, generally defined as two consecutive quarters of negative growth. Stock indexes continue to break records.
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