Conn's finance and economics app learned that the latest performance of the inflation index favored by the Federal Reserve is about to be released. The US Department of Commerce will release the US September Personal Consumption Expenditures Price Index (PCE) tonight, a key data disclosure before the Fed's interest rate decision next week. Recently released US economic data has been relatively strong, seemingly reinforcing market expectations.But after the bursting of the internet bubble and the Fed's rate cut in 2001, the ROI dropped by more than 10%.However, some market voices in recent days have also put forward the option to skip interest rate cuts. UBS Group released a report stating that if core PCE data is stronger than expected, maintaining the status quo will also come into view.

In August, the US Personal Consumption Price Index rose by 2.2% year-on-year, with commodity prices falling by 0.9% and service prices rising by 3.7%, so inflation this week may touch the Fed's 2% target level.

Alan Detmeister, an economist at UBS who has worked for the Federal Reserve, said, "We are returning to the level we should reach." He expects the September Personal Consumption Expenditures Price Index to be around 2.1% or 2%, attributing it mainly to recent energy price declines, especially gasoline price declines.

However, he stated not to get used to the 2% level, "We expect it to rebound in the coming months." Detmeister expects energy prices not to continue falling as in the past, but he mentioned that the overall trajectory of inflation is on track.

Belinda Román, an economics professor at St. Mary's University in San Antonio, Texas, said, "This is good news, but the "not-so-good news is its internals." Upon observing the composition of the latest Personal Consumption Expenditures Price Index, it will be noted that in August, service prices rose by nearly 4% year-on-year, largely due to the slow decline in housing prices.

In addition, the service industry often requires a large amount of labor. With the tight job market in recent years, many service industry wages have increased. Román pointed out that these wages often "have stickiness, which can also lead to inflation." Therefore, tracking wage trends is an important component in tracking inflation trends.

Conn's, a member of the Federal Open Market Committee (FOMC), Don Kohn, stated that he expects Federal Reserve policymakers to closely monitor the employment cost index, which will also be released on Thursday. Kohn said, "You can see how the wages for the same job change over time."

He added that there is no formula to calculate whether, when, and by how much the Fed will cut rates again. Policymakers will not only focus on the overall numbers of personal consumer spending, but will also pay attention to details: the costs of services, food, and energy, with a special focus on trendlines.

UBS Group (UBS) economist Alan Detmeister said that although reaching a 2% inflation rate is important for the Fed's credibility, it is not a magic number. He stated that as long as inflation remains low and relatively stable, the U.S. economy runs just as well at a 1% inflation rate as at a 3% inflation rate, which is what truly matters.

Does the expectation remain static?

Yesterday, the U.S. ADP employment data, known as the 'little non-farm,' far exceeded expectations, with the hiring speed of American companies in October almost reaching the fastest pace in over a year, showing astonishing growth in labor demand. This data is of significant predictive significance for U.S. non-farm employment data.

In addition, a series of strong economic data releases prior to this have shown that the scenario of a 'soft landing' expected by Federal Reserve officials seems to be getting closer infinitely. Recently released month-on-month retail sales growth, better-than-expected non-farm employment data, upwardly revised long-term GDP forecasts, and mostly in-line with expectations initial jobless claims in recent weeks, all convey bullish signals.

Top U.S. economist and finance professor at the Wharton School, Jeremy Siegel, recently stated that the Federal Reserve may keep interest rates unchanged at the upcoming policy meeting next week. Siegel mentioned that although almost all investors believe the Fed will cut rates by 25 basis points in November, exceptionally strong non-farm employment data released this Friday could disrupt these expectations.

This week, Deutsche Bank also released a forecast report suggesting the possibility of the Fed 'skipping a rate cut' coming into view. Deutsche Bank considered the five rules usually referenced by the Fed, along with other rules and balancing methods, and believed there is still room for further rate cuts. Most estimates indicate that the current rates are more than 100 basis points above the neutral rate.

Regarding the Fed's rate cut space, the bank stated that if the neutral interest rate approaches the midpoint of the Fed's long-term estimate, there will be a greater rate cut space. Overall, the Fed should be able to cut interest rates comfortably next week, and a 25 basis point cut in December is also possible. It is still too early to plan a pause now.

However, the bank also pointed out in the report that inflation with more stickiness combined with the mitigation of downward risks in the labor market will be a strong support for skipping the rate cut expectation. If the core PCE disclosed this time is higher than the target and the job market shows a robust trend, the Fed may consider skipping the rate cut at next week's meeting.

Editor/Somer