Soft US Inflation Data Cuts Odds of October Fed Hike
The U.S. Bureau of Economic Analysis (BEA) released estimates for August, showing personal income increased by $66.6 billion (0.2 percent at a monthly rate). Disposable personal income (DPI) rose by $68.6 billion (0.3 percent), and personal consumption expenditures (PCE) increased by $190.8 billion (0.9 percent). The main contributors to the increase in current-dollar personal income were compensation and government social benefits. On the other hand, the $190.8 billion rise in PCE reflected increases of $114.1 billion in spending on goods and $76.7 billion in spending on services.
The Federal Reserve's preferred inflation gauge showed core inflation at 3.0% in August, which is significantly lower than the expected 3.3%. The personal consumption expenditures price index increased by a seasonally adjusted 0.3% for the month, resulting in a 12-month gain of 3.4%. Excluding food and energy, PCE posted a 0.2% increase that put the annual core level at 3%.
The softer-than-expected inflation data has led to a reduction in odds of a Fed rate hike in October. According to Kalshi, there is now a 65% chance of no increase, compared to 31% for a 25bp hike.