The Dow Jones (DJIA) is trading higher after the Bureau of Economic Analysis (BEA) announced that September’s Personal Consumption Expenditures (PCE) index increased by 0.3% month-over-month and 2.8% year-over-year, with both readings in line with the consensus estimate. The index was delayed due to the government shutdown, which ended on November 12.
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Core PCE, which excludes volatile food and energy items and is the Fed’s preferred gauge of inflation, rose by 0.2% month-over-month and 2.8% year-over-year. Analysts were expecting a monthly rise of 0.2% and an annual gain of 2.9%.
Weak Labor Market, Contained Inflation Point to Fed Cut
The inflation data bolsters the Fed’s case to cut rates in order to address a weakening labor market, as the central bank has a dual mandate of keeping inflation under control while maximizing employment. Furthermore, the University of Michigan’s preliminary Index of Consumer Sentiment for December showed both year-ahead and long-run inflation expectations falling to an 11-month low.
The odds of a 25 bps cut at the December 9-10 Federal Open Market Committee (FOMC) meeting stand at 87.2%, up from 62% a month ago, according to CME’s FedWatch tool.
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