The Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, accelerated to a four-month high in September. The core Personal Consumption Expenditures index, which strips out volatile food and energy prices, rose 0.3% in September from August, according to the Bureau of Economic Analysis.
As with this week’s report of a surprisingly strong 4.9% annual GDP growth, the “culprit” in today’s surprise was strong consumer spending. Inflation-adjusted consumer spending jumped 0.4% last month.
The numbers in this report for inflation and earlier this week for GDP growth argue that the Federal Reserve might consider another interest rate increase in the remainder of 2023. But Wall Street sentiment doesn’t agree with that view. The CME FedWatch Tool, which calculates the odds of a Fed move based on prices in the Fed Funds Futures market, today showed a 99.5% chance that the Fed would hold interest rates steady when it meets on November 1. The FedWatch odds of no move at the December 13 meeting stood at 80.0% today. That’s virtually unchanged from the 80.1% odds of no move recorded last week.
You have to go out to the January 31 meeting to find anything like strong minority sentiment for an interest rate increase. The CME FedWatch tool puts the odds of a 25 basis point increase at 27% for that meeting. That’s up a very slim 1 percentage point higher than than the 26% odds a week ago
The yield on the 10-year Treasury was actually down 1 basis point today to 4.83%.