The latest data from the Fed's preferred inflation gauge, the <a href="https://www.bea.gov/news/2024/personal-income-and-outlays-august-2024">Personal Consumption Expenditure (PCE) Price Index</a>, is showing mixed signals surrounding inflation. On a headline basis, inflation cooled to 2.2% from 2.5%, driven by lower energy costs. However, core PCE jumped by 0.1% to 2.7%, showing that the inflation battle may not be over quite just yet. Personal spending and income also fell from last month, to 0.2%.Newspage asked economists, analysts, and traders for their thoughts on the outlook for rate cuts, the US economy, and the health of the US consumer. Their views are below.

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November rate cut finely balanced after Fed's preferred inflation gauge remains sticky

Headline PCE inflation has cooled to 2.2%, near the Fed's 2% target, but the rise in core PCE to 2.7% shows inflationary pressures persist, especially in housing and services. This leaves the Fed balancing the risk of over-tightening and causing a recession against cutting rates too soon and reigniting inflation. Despite headline numbers suggesting a resilient economy, deeper issues persist. Consumer spending, which drives two-thirds of US GDP, is increasingly propped up by unsustainable debt levels. Credit card debt has reached a record $1.14trn, and delinquencies are on the rise. Job creation is slowing, and many Americans are working multiple jobs to stay afloat. This suggests that beneath the surface, the US economy is not as robust as it might appear, and the so-called strength could be masking growing financial stress for many households. Given this backdrop, the case for interest rate cuts may stem more from fears of a slowing economy rather than a victory over inflation.

Anita Wright

I am a 𝐂𝐡𝐚𝐫𝐭𝐞𝐫𝐞𝐝 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐏𝐥𝐚𝐧𝐧𝐞𝐫 and I work with various types of clients including business owners and individual clients advising them how to achieve their financial goals. 𝐀𝐫𝐞𝐚𝐬 𝐨𝐟 𝐄𝐱𝐩𝐞𝐫𝐭𝐢𝐬𝐞: Bringing over a decade of experience, I have successfully navigated the ever-evolving financial landscape. My expertise covers investment planning, retirement strategies, risk management, and holistic financial planning including cashflow modelling, retirement seminars, employee surgeries. 𝐏𝐫𝐨𝐟𝐞𝐬𝐬𝐢𝐨𝐧𝐬 𝐈 𝐬𝐩𝐞𝐜𝐢𝐚𝐥𝐢𝐬𝐞 𝐢𝐧: Legal professions (Barristers/ Solicitors), Business Owners, Sports Professionals

Today we have seen the US Dollar weaken following the release of Personal Consumption Expenditure (PCE) Price Index data, showing a small jump to 2.7%. It seems that November rate cut odds will most likely be in favour of another 50 bps cut for the Fed, which is my personal base case for November. Employment numbers, as ever, will be more important than today's release, so next week's NFP's will be interesting to see, and will most likely dictate what November's rate decision looks like.

Prem Raja

The inflation dragon is losing its fire, as August's PCE data reveals a cooling trend and has reinforced market expectations for further rate cuts by the Fed. In the varied fabric of economic indicators, PCE inflation data is the golden thread that weaves through the Fed's ever-evolving decision-making process. As the favoured inflation gauge, these figures are pivotal in shaping upcoming policy decisions and act as a barometer for their monetary outlook. The combination of cooling inflation and moderating consumer activity will likely bolster the Fed's confidence in its recent pivot towards monetary easing. However, while the data is encouraging, the Fed’s dual mandate of price stability and maximum employment means that labour market indicators will also play a crucial role in shaping policy decisions. Additionally, with gold prices achieving continued record highs, this PCE reading might allow the precious metal to shine even brighter as the Fed is likely to remain firmly dovish.

Gabriel McKeown

I am an analyst working in the institutional investment consulting sector, and the founder of Sad Rabbit Investments. I provide in-depth investment research reports focusing primarily on Global Equities, Multi-Asset, and Macroeconomics. Sad Rabbit is an investment research platform with a single defining goal: to democratise access to financial markets. We didn’t think it was fair that only professionals get access to the best investment research and market data. So, we have developed tools to help level the playing field for private investors and released these completely for free!

While markets are pricing in a 50bps cut at the November meeting, a deeper dive into the latest PCE data reveals a more nuanced picture. The fall in headline PCE is masking underlying inflationary pressures that remain stubborn, as the huge drop was driven by declining energy costs and goods deflation. However, stickier elements of inflation remain stubbornly high, as year-over-year core PCE rose for the first since January 2023. The labour market isn't showing tremendous signs of cooling either. Although personal income did fall, this was down to lower asset receipts and dividends, because wages actually rose from July. Meanwhile, consumer spending, while down, was primarily due to decreased motor vehicle purchases, with services spending remaining robust. What's more, election jitters may be tempering some consumer spending, but overall strength persists. As such, looking beyond headline figures, there's little justification for the Fed to rush into another 50bps cut.

John Choong

John Choong is currently ranked the number one analyst in the UK, according to stock tip-recommendation website, Stockomendation. His share tips provide investors with actionable insights as he successfully identifies sectors and companies with consistent growth potential. Aside from that, John's often conducts research and analysis of macroeconomic as well as financial data that consists of plenty of unique insights which you might not otherwise find elsewhere.

Jobs not jumps. US inflation is trending in the right direction, albeit with a tiny tick up in core PCE. JayPo seemed to be clear last time out that whilst inflation moves in their prefered direction, he remains laser focused on the jobs market and any signs of breakage there indicating potenially recessionary signals. Therefore, even if jobs numbers remain strong, the Fed will likely still proceed with rate cuts, even as the election approaches in November.

Wes Wilkes

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