The latest data on the inflation indicators favored by the Fed shows that the price increase in the United States in August was lower than expected, which may push the Fed to further cut interest rates for the rest of this year and next year.

The core personal consumption expenditure (PCE) price index, excluding food and energy prices, is a key indicator closely watched by the Fed. It rose by 0.1% month-on-month in August, lower than Wall Street's expectations of 0.2% and July's 0.2%. The August core PCE price index rose by 2.7% year-on-year, meeting Wall Street's expectations but higher than July's 2.6%.

The overall PCE year-on-year growth rate slowed to 2.2%, below the expected 2.3%; the month-on-month growth rate slowed to 0.1%, unchanged.

Other data shows that moderate growth in US consumer spending in August implies that the economy retained some strong momentum in the third quarter while inflation pressures continue to weaken. Consumer spending, which accounts for more than two-thirds of US economic activity, increased by 0.2% last month, while the unadjusted increase in July was 0.5%, lower than the market's predicted 0.3% growth.

After the data was released, gold rose slightly and traded around $2670, with the US dollar index nearing the 100 level.

Short-term interest rates in the USA rose after the release of PCE inflation data, reflecting an increase in market expectations for further interest rate cuts by the Federal Reserve. Interest ratesFutures Trading Commission (CFTC)'s latest data shows that investors are significantly reducing their net short positions in US soybean, corn, and wheat contracts, easing bearish sentiment in the market.It is believed that the probability of the Fed cutting interest rates by 50 basis points in November is slightly higher than cutting by 25 basis points - the probability of a 50 basis point rate cut in November is about 54%, while the probability of a 25 basis point rate cut remains as high as 46%.

However, in either case, traders are betting that the policy interest rates will be cut by 75 basis points before the end of the year. The current policy interest rate of the Federal Reserve is between 4.75% and 5.00%.

This report is the first release of inflation data by the Federal Reserve after a 50 basis points rate cut on September 18. Powell pointed out at the press conference after the rate cut decision that the Fed now has more confidence in the path of inflation falling towards the 2% target.

Powell believes that the further cooling of the labor market is now as concerning as inflation for the Federal Reserve. Powell said, "The upward risks to inflation have indeed decreased, and the downward risks to employment have increased. Because we have been patient and have not taken action to cut interest rates - although inflation has decreased, I think we are now in a very favorable position to manage the risks of our two objectives."

Recent reports indicate that the economy is still expanding at a healthy pace. On Thursday, the U.S. government confirmed the earlier forecast that the U.S. economy grew in the second quarter of this year at a healthy pace of 3% on an annual basis, driven by strong consumer spending and business investment.

Several individual economic indicators are also reassuring. Last week, the number of Americans applying for unemployment benefits fell to the lowest level in four months.

Editor/Emily