Fed's Favorite Inflation Metric Accelerates In September, Personal Income Rises More Than Expected (UPDATED)

Editor’s note: This story has been updated with additional details.

Traders faced an unwelcome Halloween threat on Thursday as the Federal Reserve’s favored inflation measure accelerated, raising some concerns on the likelihood of back-to-back interest rate cuts going into the final two monetary policy meetings of the year.

The PCE price index rose 2.1% year-over-year, in line with analyst forecasts. Yet the core PCE index — which strips out volatile food and energy prices and gives a better indication of underlying price pressures — rose 2.7%, slightly above the expected 2.6%.

The latter stronger-than-expected inflation figure could keep the Fed on alert as it weighs its next policy moves. While a 25-basis-point rate cut at next week's Fed meeting is widely seen as a done deal as per the CME FedWatch tool, market expectations for another cut in December could face some setbacks.

Personal Income And Outlays Report For September: Key Highlights

• The PCE price index rose 0.2% month-over-month in September, matching the predicted 0.2% and accelerating from the previous 0.1%.
• The core PCE price index rose 0.3% from the previous month, accelerating from 0.1% and matching estimates.
• On an annual basis, the headline PCE price index surged 2.1%, down from August’s upwardly revised 2.3%.
• The core PCE price index held at 2.7% year-over-year, as in August.
• Personal income increased by $71.6 billion, or 0.3%, in September, matching expectations of 0.3% and above the previous month’s 0.2% growth.
• Personal saving rate eased from 4.8% to 4.6%, with personal savings down from $1.05 trillion to $1 trillion in September.
• Personal spending increased by $105.8 billion, or 0.5%, surpassing estimates of 0.4% and accelerating from the previous 0.2%.

Market Reactions

Markets showed minimal reaction to the latest PCE inflation report, with the U.S. dollar index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF UUP, largely maintaining its morning losses of 0.2%.

Treasury yields were steady, with the two-year yield, sensitive to rate changes, holding at 4.17%.

As of 8:50 a.m. in New York, S&P 500 futures were down 0.6%, while Nasdaq 100 contracts also dipped by 0.6%. Yet, both held broadly steady after the inflation data release.

On Wednesday, the SPDR S&P 500 ETF Trust SPY fell 0.3%, ending a two-day winning streak.

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