Fed’s preferred inflation gauge comes in hotter than expected

Core PCE, the Fed's preferred inflation measure, exceeded the 4.7% YoY forecast, printing at 4.9%. However, on a month-on-month basis, it was 0.6% against the 0.5% expected. Food and energy prices are excluded from the core number, implying that aggregate demand hasn't adjusted as expected for the Fed's current hiking cycle.

The US 02-year note spiked on the announcement to 4.21%. The market has priced in a 57% probability that the Fed will deliver another 75 bps increase for its November meeting. In New York, Fed Vice Chair Brainard stressed that "policy will need to be restrictive" and that "we are committed to avoiding pulling back prematurely."

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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