Growing Interest in US Personal Consumption Expenditures Amid Rate Cut Expectations... Powell to Speak

Amid growing expectations for a year-end Santa rally, this week the U.S. Federal Reserve (Fed)'s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, will be released. Fed Chair Jerome Powell, who has stated that more evidence is needed to confirm the easing inflation trend, is also expected to speak.

[Image source=Reuters Yonhap News]

According to expert forecasts compiled by the Wall Street Journal (WSJ) on the 26th (local time), the U.S. core PCE for October, to be announced on the 30th, is estimated to rise 3.5% year-over-year. This would continue the slowdown from the previous month's 3.7%, marking the lowest level since 2021. The core PCE is also expected to increase by only 0.2% month-over-month.

If the inflation indicators continue to show a slowdown like this, expectations for a Fed interest rate cut are likely to strengthen further. This could also positively impact the market, which is anticipating a year-end Santa rally. Yahoo Finance reported, "The PCE data will put the New York stock market, which is rallying on hopes that the U.S. economy will achieve a soft landing without a severe recession, to the test." Earlier released October Consumer Price Index (CPI) data also showed a much stronger-than-expected slowdown, spreading market expectations for a pivot. Ahead of the PCE release, the Fed's Beige Book, containing economic assessments, will be published on the 29th.

Currently, the market widely expects no further rate hikes. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures markets reflect over an 87% probability that the Fed will keep rates unchanged in both December this year and January next year. Unlike the November Federal Open Market Committee (FOMC) minutes, which contained no discussion of rate cuts, expectations for a pivot next year continue. The probability of a rate cut by May next year stands at around 64%.

This week, Powell is also scheduled to participate in a discussion. On the morning of the 1st, he will attend an event in Atlanta and take part in a panel. At this event, he is expected to welcome the recent confirmed slowdown in inflation but emphasize that there is still a long way to go to achieve the 2% price stability target. In addition to Powell, John Williams, President of the New York Federal Reserve Bank and considered the Fed’s third-ranking official, Christopher Waller, a Fed Governor, and Michelle Bowman, also a Fed Governor, will make public remarks this week. Other indicators to be released include the Conference Board (CB) Consumer Confidence Index, which gauges consumer sentiment, the preliminary third-quarter Gross Domestic Product (GDP) growth rate, and the ISM Manufacturing Purchasing Managers’ Index (PMI).