Markets are becoming increasingly confident that the Federal Reserve will introduce interest rate cuts early next year following the release of the “core” Personal Consumption Expenditures index on Friday. The index showed a 3.2% rise in prices, thereby outdoing analysts’ expectations of a 3.3% rise. The PCE index has shown a constant slowdown in price increases throughout the year.
On a six-month annualized basis, core inflation dropped to 1.9%, beating the Fed’s target inflation rate of 2%. This is the first time in three years that this measure has reached the Fed’s inflation target.
“It is clear that price pressures are abating and the Fed should cut rates accordingly,” chief economist for Wilmington Trust Luke Tilley observed. This statement aligns with Fed Chair Jerome Powell’s previous statement that the central bank had most likely reached its peak interest rates since the start of its fight against inflation. Powell indicated that the Fed would soon turn its attention to rate cuts.