Source: Jin10 Data
Author: Zhu Yu
USA's core PCE annual rate slightly exceeded expectations, initial jobless claims declined, the market still bets that the Federal Reserve will cut interest rates by 25 basis points in November.
At 20:30 on Thursday Beijing time, the PCE inflation index favored by the Federal Reserve recorded the largest monthly increase since April, supporting the Federal Reserve's slowdown in interest rate cuts after a significant rate cut last month.
In September, the US core PCE price index recorded an annual rate of 2.7%, higher than the expected 2.6%, unchanged from the previous value. The US core PCE price index for September recorded a monthly rate of 0.3%, in line with the expected 0.3%, rebounding from the 0.1% in the previous month.
In September, the PCE price index recorded an annual rate of 2.1%, meeting expectations, higher than the previous value of 2.2%, the lowest level since early 2021, slightly above the Federal Reserve's 2% target. The monthly rate recorded 0.2%, meeting expectations, higher than the previous value of 0.1%. Supported by a 0.1% increase in real income, consumer spending adjusted for inflation grew by 0.4%. The savings rate dropped to 4.6%.
Due to the decline in energy prices, the overall PCE index annualized growth rate for the third quarter was 1.5%, lower than the 2.5% in the second quarter.
The initial jobless claims in the USA for the week ending October 26th, released at the same time, recorded 0.216 million people, lower than the expected 0.23 million people, with the previous value revised from 0.227 million people to 0.228 million people. The continuing jobless claims in the USA recorded 1.862 million people, lower than the expected 1.885 million people, with the previous value revised from 1.897 million people to 1.888 million people.
After the data was released, spot gold fell $4 in the short term, while the yield on 10-year Treasury bonds rose.
According to CME's "Fed Watch," the probability of the Fed cutting 25 basis points by November is 96.1%, while the probability of keeping the current interest rate unchanged is 3.9%. By December, the probability of keeping the current interest rate unchanged is 1.1%, the cumulative probability of a 25 basis point cut is 29.2%, and the cumulative probability of a 50 basis point cut is 69.7%. (No change compared to before the PCE data was released)
Earlier this month, the initial jobless claims surged due to Hurricane 'Helen' disrupting economic activities in the southeastern USA. After Hurricane 'Milton' hit Florida, the initial jobless claims remained high in mid-month; the strike by Boeing factory workers also increased the number of claims for unemployment benefits, forcing the aircraft manufacturer to implement rolling furloughs. Following the fluctuations caused by the hurricanes and strikes, the situation in the US labor market may not have changed much. However, storms and labor disputes may have dampened employment growth in October. Economists expect that Federal Reserve officials may overlook the employment report at next week's meeting and cut rates by 25 basis points.
However, Peter Cardillo, Chief Market Economist at CSI All Share Investment Banking & , holds a different view. He pointed out that the implication of further inflation may rise, which has been essentially confirmed in today's data, with the tricky part being the core PCE. This means the Fed is likely to pause its rate cuts at the next meeting.
"The possibility of the Fed pausing rate cuts is greater than ever before," he said. "Consumption remains strong, and we have seen this from other macro indicators. The situation now is that the economy is running quite well, but inflation remains a problem, and core PCE continues to be somewhat high. This is a concerning issue, which means the Fed may pause rate cuts next week."
The data released by the US Department of Commerce on Thursday is the final update on the hot election issue of inflation before the general election. However, this report, focusing on American spending, also provides consumers with some less encouraging information. Overall PCE for September recorded 2.1%, making September the 41st consecutive month where the core PCE inflation rate has been at least 2.5%, far above the Fed's long-term target of 2%.
In addition, the personal savings rate recorded 4.6%. Although this is an improvement from the record low of 2% set in the inflation-plagued year of 2022, the savings rate has never been below 5% from 2014 to 2021. The decrease in the savings rate indicates that despite the stock market being at a high, strong economic growth, many Americans are uneasy about their personal finances and the overall economy.
According to surveys by Gallup, the New York Times, and the Pew Research Center, the economy is the top issue for voters in the presidential election. Another Gallup poll this month found that high living costs are Americans' top economic concern.
Trump largely blames the Biden-Harris administration's energy policy and promises that if elected, inflation will "completely disappear". Harris promises to ban grocery price gouging and reduce the cost of child care and medical care.
Economists say Trump's policies would actually exacerbate inflation, mainly because he plans to impose comprehensive new tariffs and initiate large-scale deportations of immigrants and other migrants. Experts say Harris's proposal to combat price gouging would leave the inflation outlook almost unchanged.
Editor/Jeffy
