One of the US Fed’s favoured measures of inflation is the change in the core personal consumption expenditures (PCE) price index. After hitting the Fed’s target at 2.0% in mid-2018, the annual rate then hovered in a range between 1.8% and 2.0% through to the end of 2018 before dropping in the first quarter of 2019. It then hovered around 1.5% or just above it for some months before moving higher recently.
The latest figures have now been published by the Bureau of Economic Analysis as part of the August personal income and expenditures report. Core PCE inflation was +0.1% for the month, in line with expectations but less than July’s +0.2%. However, on a 12-month basis, the core PCE inflation rate ticked up from July’s revised rate of 1.7% to 1.8%.
ANZ economist Jack Chambers said, “The rise, whilst still below the Fed’s 2.0% target, will be a welcome move in the right direction by US policymakers.”
US Treasury yields finished the day a little lower across the curve. By the end of the day, 2-year yields had lost 2bps to 1.64%, 10-year yields slipped 1bp to 1.69% and 30-year yields had lost 2bps to 2.13%.
In terms of likely US monetary policy, according to federal funds futures contracts the probability of a rate cut at the October meeting of the FOMC remained close to a 50/50 bet. December contracts implied a slightly higher chance of a rate cut from that of the previous day; at the end of the day a third rate cut in 2019 crept up from 69% to 70%.