Fed's Favorite Inflation Gauge Heats Up As Predicted, Personal Incomes Soar

An inflation gauge that’s closely watched by the Federal Reserve rose as anticipated in October, while personal income and spending data continues to reveal a resilient U.S. consumer.

Earlier on Wednesday, the second estimate of the third-quarter economic growth was 2.8%, in line with the data initially reported.

Inflation Rises Again In October

The Personal Consumption Expenditures (PCE) price index rose 2.3% in October on a year-over-year basis, accelerating from September’s 2.1% reading but matching economist expectations of 2.3%, based on TradingEconomics projections.

On a monthly basis, the PCE index increased by 0.2%, in line with both the prior reading and forecasts of 0.2%.

When excluding volatile food and energy costs, the core PCE price index — widely regarded as the Fed’s most reliable inflation measure — climbed to 2.8% year-over-year in October, up from September’s 2.7% and in line with economist forecasts.

On a monthly basis, core PCE inflation remained steady at 0.3%, mirroring September’s pace.

Personal income soared by 0.6% in October, higher than the 0.3% figure recorded in the prior month and exceeding market expectations.

Personal spending, while showing signs of slowing from 0.5% in September to 0.4% in October, also came in above expectations of 0.3%.

Inflation Data Keeps December Rate Odds Steady

The economic data released on Wednesday underscores the resilience of the U.S. economy while signaling that inflationary pressures may require careful monitoring in the months ahead.

Market expectations for a Federal Reserve interest rate cut in December remained steady Wednesday.

Prior to the release of the GDP and PCE reports, traders assigned a 66% probability to a 25-basis-point rate cut at the Federal Open Market Committee meeting Dec. 18. The latest data did not alter those odds, according to the CME FedWatch tool.

The U.S. dollar index (DXY) — as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) — was 0.6% lower on Wednesday.

Stocks traded mostly flat on Wednesday morning, with the SPDR S&P 500 ETF Trust (NYSE:SPY) edging down 0.1% as of 10:05 a.m. EST in New York. The subdued activity reflects a light trading session ahead of the Thanksgiving holiday.

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