US Core PCE Report to Influence FOMC's October Rate Hike Decision

The upcoming Core PCE report in the US is expected to have a significant impact on the Federal Reserve's monetary policy meeting on October 28. According to FOREX.com, economists predict a 0.3% month-over-month increase in core PCE for August, which would bring the annual rate around 3.3% to 3.4%. This will be the last Core PCE print before the FOMC's meeting.

A hotter-than-expected reading could strengthen the case for another interest rate hike at the October meeting, while a lower-than-expected print may give policymakers more reason to wait and assess incoming data. The report also includes an update to the national accounts, which could revise previous inflation history.

Consumer demand is another key aspect of the release, with personal income expected to rise around 0.5% and spending forecasts clustered around 0.8% to 0.9%. Strong spending would suggest households remain resilient despite higher rates, potentially making the Fed less comfortable assuming inflation will cool on its own.

The policy backdrop is straightforward: the Fed raised rates by 25 basis points in September, and the latest dot plot showed the median policymaker expecting one additional quarter-point hike before year-end. The key hurdle for the report is a 0.4% core reading, which would be difficult for the Fed to dismiss.

A hotter-than-expected Core PCE reading could bring the US Dollar Index (DXY) resistance level of 102.00 into play, while any inflation relief may lead to only a short-term dip back toward 101.00.