Softer US inflation lowers traders’ bets on an October Fed rate hike
US inflation came in below expectations in August, reducing traders’ bets on a Federal Reserve rate hike as soon as October. LSEG data put the implied probability at about 35%, down from roughly 45%.
Image: theguardian.com · Author: Guardian staff and agencies · source articleEditorial excerpt for news reporting
US stocks reacted to softer-than-expected inflation as investors reduced their expectations of a Federal Reserve rate hike as soon as October.
The personal consumption expenditures (PCE) price index rose 3.4% year over year in August, below the 3.7% forecast from economists polled by Reuters.
Traders revise Fed rate expectations
LSEG data showed traders pricing in about a 35% chance of an October hike, down from roughly 45%. The Fed raised rates earlier in September for the first time since 2023 and is facing pressure from the White House to cut them.
Separate data showed the US economy grew at a solid pace in the second quarter, supported by consumer spending and business investment tied to the expansion of artificial-intelligence infrastructure.
Major indexes finish unevenly
The S&P 500 ended down 0.25%, the Dow fell 0.86% and the Nasdaq gained 0.24%. Despite September weakness linked to bond-market volatility and higher oil prices amid the US-Iran conflict, the S&P 500 and Nasdaq were on track for a second consecutive quarterly advance if their gains held.
The 10-year Treasury yield stood at 5.246% on Wednesday, a day after reaching its highest level since June 2007. Oil prices also rose, including the December Brent crude contract.
Private employers add 90,000 jobs
ADP reported that private employers added 90,000 jobs in September, above expectations and up from 36,000 in August.
The Labor Department is due to release the broader monthly employment report on Friday. Economists expect September payrolls to rise by 84,000, down from 162,000 in the previous month.
Inflation has become the leading issue for voters ahead of the midterm elections, while Donald Trump has received poor marks for his handling of the economy. Sam Stovall, chief investment strategist at CFRA Research, said the positive economic catalyst triggered the market’s expected upward move.
What we know
- A below-forecast PCE reading reduced expectations of an October Fed rate hike.
- The implied probability of an October hike fell from roughly 45% to about 35%.
- US private employers added 90,000 jobs in September.
- The S&P 500 fell 0.25%, the Dow lost 0.86% and the Nasdaq gained 0.24%.
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