September PCE Inflation Data Increases Expectations for December Fed Rate Hike
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose to 3.6% in September, up from 3.4% in August. Core PCE, which excludes volatile food and energy prices, climbed to 3.1%, marking a faster month-over-month pace of 0.3%. This data suggests that the cooling trend seen over the summer may have been temporary rather than a long-term shift. The stronger-than-expected inflation reading, combined with robust third-quarter GDP growth of 3.4% driven by consumer spending and private investment, has solidified market expectations for an interest rate hike in December. Markets are currently pricing in an over 80% probability of a rate increase. Fed Chairman Kevin Warsh noted that while credit conditions have tightened slightly, they are not yet restrictive enough to preclude further policy tightening.