Market Relief: Inflation Fears Ease with Cooler PCE Index
The latest personal consumption expenditures (PCE) price index report brought a sigh of relief to markets, as it revealed a less-than-expected 0.1% increase in November. This marks a cooler inflation picture compared to October’s 0.2% gain, and when combined with solid but disappointing consumer spending, it supported markets struggling with the Federal Reserve’s recent “hawkish” rate cut.
Annual Inflation Rate Rises, but Core Inflation Remains Steady
The PCE price index advanced 2.4% in the year through November, partly due to last year’s low readings dropping out of the calculation. Excluding the volatile food and energy components, the core inflation rate remained steady at 2.8% over the same period.
Market Reaction: Stocks, Bonds, and Forex Respond
The S&P 500 pared losses to -0.51%, while U.S. Treasury 10-year yields fell to 4.506% and the two-year yield fell to 4.259%. The dollar index extended lower, showing a loss of 0.42%.
Expert Insights: A Relief Rally, but Caution Remains
Adam Sarhan, Chief Executive of 50 Park Investments, noted that the market is experiencing a relief rally due to the data taking away the threat of out-of-control inflation. Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, expects the market to continue selling off into the weekend but is watching for signs of dip-buying.
Brian Jacobsen, Chief Economist at Annex Wealth Management, believes the data undermines the Fed’s hawkish stance, while Peter Cardillo, Chief Market Economist at Spartan Capital Securities, sees the cooler inflation data as good news for markets but not a game-changer for the Fed’s path.
Helen Given, FX Trader at Monex USA, thinks the market reaction is driven by the personal income and personal spending release, which was under expectations. She believes the Fed will likely pause in January and may cut rates in March, but more evidence is needed.
Overall, the market is breathing a sigh of relief, but experts remain cautious, acknowledging that the data doesn’t necessarily indicate a trend and that the Fed’s stance is still uncertain.
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