PCE data continues to cool down! The market is still slightly leaning towards a significant rate cut by the Federal Reserve

The latest data on the inflation index preferred by the Federal Reserve shows that the price increase in the United States in August was lower than expected, which may push the Federal Reserve to further cut interest rates for the remaining time this year and next year.

The core Personal Consumption Expenditures (PCE) price index, excluding food and energy prices, is an indicator closely watched by the Federal Reserve. It rose by 0.1% in August on a month-on-month basis, lower than Wall Street's expectation of 0.2% and July's 0.2%. The core PCE price index rose by 2.7% year-on-year in August, in line with Wall Street's expectations but higher than July's 2.6%.

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

Other data shows that consumer spending in the United States moderately increased in August, implying that the economy retained some strong momentum in the third quarter while inflation pressures continued to weaken. Consumer spending, which accounts for more than two-thirds of economic activity in the United States, increased by 0.2% last month, compared to an unrevised increase of 0.5% in July. This growth was lower than the market's forecast of 0.3%.

After the data was released, gold rose slightly and traded near $2670, while the US dollar index approached the 100 level.

U.S. short-term interest rate futures rose after the PCE inflation data was released, reflecting an increased market expectation of further interest rate cuts by the Federal Reserve. Interest rate futures traders believe that the probability of a 50 basis point rate cut by the Fed in November is slightly higher than a 25 basis point cut— the probability of a 50 basis point cut in November is about 54%, while the probability of a 25 basis point cut remains high at 46%.

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

This report is the first inflation data released by the Federal Reserve after the 50 basis point rate cut on September 18. Powell stated at a press conference after the rate cut decision that the Federal Reserve now has "more confidence" in the path of inflation towards the 2% target.

Powell believes that the cooling labor market is now as concerning as inflation. 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 rates—although inflation has fallen, I think we are now in a very favorable position to manage the risks of our two targets."

Recent reports indicate that the economy is still expanding at a healthy pace. On Thursday, the U.S. government confirmed previous forecasts that the U.S. economy grew at a healthy rate of 3% on an annualized basis in the second quarter of this year, 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