Fed Rate Hike Odds Diminish as US Inflation Rises Below Expectations

The US inflation rate increased less than expected in August, according to data released by the Commerce Department. The Personal Consumption Expenditures Price Index rose 0.3% last month after a downwardly revised 0.1% gain in July. Economists polled by Reuters had forecasted the PCE price index rising 0.4% after a previously reported 0.2% gain in July.

The less-than-feared inflation data may give the Federal Reserve some breathing room to await more data before making any decisions on interest rates. However, another rate hike this year remains a possibility as consumer spending surged 0.9% last month after a downwardly revised 0.1% gain in July.

Despite rising energy prices and concerns about the impact of the US-Israeli war with Iran, the economy appears to be holding up. Sal Guatieri, a senior economist at BMO Capital Markets, noted that 'the less-than-feared price data for August may buy the Fed time to await more data and pass on October 28, but still-elevated inflation and a resilient consumer and economy point to another rate hike by year-end.'