The Federal Reserve's favorite inflation indicator rebounds! The U.S. core PCE price index in September rose 2.7% year-on-year, with the month-on-month increase reaching the largest record in six months

The Federal Reserve's favorite inflation indicator saw its month-on-month increase reach the highest record in six months, while consumer spending also accelerated, reinforcing the Fed's rationale for slowing down interest rate cuts.

On October 31, the U.S. Bureau of Economic Analysis released data showing:

The U.S. September PCE price index rose 2.1% year-on-year, in line with expectations, the lowest level since early 2021, slightly above the central bank's 2% target, with the previous value revised from 2.2% to 2.3%; the PCE price index increased 0.2% month-on-month, in line with expectations, slightly above the previous value of 0.1%.

The Fed's favorite inflation indicator—the core PCE price index rose 2.7% year-on-year, matching the previous value, exceeding the expected 2.6%; the core PCE price index increased 0.3% month-on-month, in line with expectations, the highest level since April of this year, with the previous value revised from 0.1% to 0.2%.

After the data was released, U.S. stock futures remained stable, and the decline in short-term interest rate futures narrowed, with the market expecting the Fed to cut rates by 25 basis points in both November and December.

Super Core Inflation Indicator Remains Strong

From the month-on-month data, PCE inflation appears to be accelerating due to rising costs of durable goods and services.

The so-called Super Core PCE inflation indicator rose 0.3% month-on-month, while the year-on-year increase remained robust at around 3.2%.

Consumer Spending Accelerates, Savings Rate Declines Further

In September, personal income growth rose to 0.3%, in line with expectations, but personal consumption expenditures (adjusted) grew 0.4%, exceeding expectations, with the previous value revised from 0.1% to 0.2%. The growth in consumer spending was mainly due to government relief funds.

In terms of income, private sector wages grew 6.4% in September, while government wages grew 6.7%, significantly lower than the historical high of 7.9% in March.

The savings rate has dropped to 4.6%.

November 25 basis point rate cut is a done deal

Data released on the same day showed that the number of initial jobless claims in the U.S. last week was 216,000, the lowest level since May, highlighting the resilience of the labor market once again. A series of stronger-than-expected data indicates that the Federal Reserve will be more cautious about rate cuts in the coming months.

The CME FedWatch Tool shows that the probability of a 25 basis point rate cut in November is as high as 96.1%, and the probability of continuing to cut rates by 25 basis points in December is also over 70%.