Fed’s preferred inflation gauge falls to 3.4%, below 3.7% forecast

US August PCE inflation, the Federal Reserve’s preferred gauge, undershot forecasts, and prior month figures were revised lower. Rate hike expectations for October declined.

Key figures

- Headline PCE year over year: 3.4% versus 3.7% expected.
- Core PCE year over year: 3.0% versus 3.3% expected.
- July revisions: headline and core PCE lowered by 30 basis points each.

Market impact

- Policy path: Softer inflation reduces pressure for an October rate increase. Futures-implied odds of a hike fell.
- Rates and dollar: Lower hike odds support lower yields and a softer dollar relative to prior expectations.
- Risk assets: Easing rate expectations are supportive for equities and cryptocurrencies.