Core PCE came in at 4.1% y/y. This was lower than the 4.2% expected and lower than the previous print of 4.6%. This is the lowest annual rate since September 2021. On a monthly basis core PCE came in at 0.2%, which is 2.4% annualised.
If core CPE's rate of change (ROC) remains on the deceleration side of 50, the series should track towards the Federal Reserve's target of 2%. In this regard, the ROC has accelerated to the downside (green rectangle), implying a faster move towards target.
The data denotes that prices have started to ease. The related Employment Cost Index q/q printed at 1%, which was also lower than the forecast 1.1%, and below the previous number of 1.2%.
The further moderation in inflation comes a day after advance GDP q/q surprised to the upside at 2.4% (1.8% was expected). So, there is decent growth with slowing inflation. At the same time jobless claims were also lower than expected at 221K (vs. 234K). This has boosted the soft-landing narrative. Interestingly the consumption part of yesterday's GDP was softer at 1.6% - the previous quarter's was at 4.2%. However, today's personal spending release was 0.5% m/m, higher than last month 0.2% and higher than the forecasted 0.4%. This may suggest that consumption is picking up again.
Earlier in the week the Fed announced a 25bps increase, its 11th hike since March 2022. This took the borrowing range to 525-550bps, its highest level in 22 years. However, the emergence of the proverbial Goldilocks scenario has allowed the Federal Reserve to slow down its tighter monetary policy.
After the hike, Fed Chairman Jerome Powell emphasised that upcoming rate decisions would rely on incoming data rather than on a predetermined policy course. Central bank officials hold the general belief that inflation remains elevated, despite recent favourable trends, and they would want sustained positive trends over several months before considering any directional shifts.
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.