US Inflation Eases, Fed Rate Hike Odds Shift

US inflation came in softer than expected in August, offering some relief to investors worried about another Federal Reserve rate hike.

The Commerce Department reported that the personal consumption expenditures (PCE) price index rose 0.3% in August, putting annual inflation at 3.4%. Economists had expected a 0.3% monthly increase and a 3.7% annual gain.

Core PCE, which excludes food and energy and is closely watched for underlying inflation trends, rose 0.2% for the month and 3% from a year ago. Both readings were below expectations of 0.3% and 3.3%, respectively.

The cooler inflation data boosted stock futures and pushed Treasury yields lower as traders reduced bets on an October rate hike. Markets now see December as the more likely window for another increase.

Economists still consider inflation too high, but the latest data give the Fed more room to wait before tightening policy again.