August PCE data shows U.S. inflation nearing the Fed's target, boosting rate cut expectations.

Data released by the U.S. Department of Commerce on Simulated futures mobile versionFriday showed that the Personal Consumption Expenditure (PCE) price index rose by 0.1% month-on-month in August, in line with market expectations and below the revised 0.2% increase in July. Year-on-year, the PCE price index increased by 2.2%, slightly down from 2.5% in July.

Excluding the more volatile food and energy sectors, the core PCE price index also rose by 0.1% in August. The core inflation rate increased to 2.7% from 2.6% in July, remaining within the range closely monitored by the Federal Reserve.

Following the release of this inflation data, U.S. stock index futures edged up by 0.16%, indicating a positive market sentiment. In the bond market, the yield on 10-year Treasury notes fell to 3.762%, and the yield on 2-year Treasury notes dropped to 3.584%. The dollar index decreased by 0.3%.

Economists expressed cautious optimism about the data. Brian Jacobsen, Chief Economist at Annex Wealth Management, indicated that Federal Reserve Chair Jerome Powell’s decision to cut rates is supported by the data, as both core inflation and personal income were slightly below expectations. The decline in interest income might continue to squeeze consumption.

Peter Cardillo, Chief Market Economist at New York’s Spartan Capital Securities, believes that this data suggests inflation is steadily declining towards the Federal Reserve’s 2% target. Moreover, the lower-than-expected income and spending figures point to signs of economic slowdown, which could lead the Federal Reserve to cut interest rates by another 50 basis points before the end of the year.

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