Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Mike Denver
Oct 03, 2023 11:52AM ET
Hey Tim your a fool
2
0
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
Extended Sale! Save on premium data with Claim 60% OFF
The Fed Likely to Hold Rates Steady as August PCE Shows Inflation Cooling
www.investing.com/analysis/the-fed-likely-to-hold-rates-steady-as-august-pce-shows-inflation-cooling-200642282
The Fed Likely to Hold Rates Steady as August PCE Shows Inflation Cooling
By The Tokenist (Timothy Fries ) | Sep 29, 2023 04:00PM ET The PCE price index increased by 0.4% vs. an estimated 0.5% monthly. Likewise, the core PCE price index increased by 0.1% vs. an estimated 0.2%.
The Fed’s decision to maintain the interest rate within the 5.25 – 5.50% range at the last FOMC meeting appears to have been justified. Friday’s Bureau of Economic Analysis report shows that the Personal Consumption Expenditures (PCE) price index came in under expectations.
On a monthly basis (for August), the PCE price index increased by 0.4% vs. an estimated 0.5%. Likewise, the monthly core PCE price index increased by 0.1% vs. an estimated 0.2%. For both versions annually, PCE matched expectations at 3.5% and 3.9% (core).
This marks the lowest PCE rise since September 2021. Of the different inflation indicators, core PCE is the preferred gauge for the Federal Reserve as it excludes more volatile items like food and energy. As such, the core PCE price index is more useful to determine monetary policy.
Equally, this inflation gauge is closely watched for the same reason, often impacting market moves.
Market’s Reaction to Soft Inflation Report
Tracking the 30 largest American blue chip stocks, the Dow Jones Industrial Average (DJI) opened 0.64% higher on Friday, rising by 216.27 points. Other benchmarks were equally receptive to positive PCE news. The S&P 500 (SPX) rose by 0.66%, while the tech-focused Nasdaq Composite (IXIC) jumped by 1.03%.
Interestingly, Bitcoin dropped sharply in the afternoon, going to $26.7k, only to stabilize at $26.9k again. This is not surprising, given Bitcoin’s perception as a hedge against inflation. If the inflation trends downwards, demand for bitcoins may be less pressing.
On the other hand, if the Federal Reserve is now less likely to raise interest rates and more likely to accelerate rate cuts, this would be favorable for crypto investors. After all, the historic inflow of cheap capital during 2020/21 allowed Bitcoin to reach an all-time high price of $68,789 in November 2021.
Regarding the dollar itself, softer inflation figures slightly raised the US Dollar Index, which is often inversely related to Bitcoin’s price moves. This played out again on Friday.
Typically, the potential of rate cuts leads to DXY decline as the dollar becomes cheap again. Nonetheless, this plays out differently if a hard landing is on the horizon, as it appears to be. In that scenario, investors seek safe-haven bonds in anticipation of a stock market decline., which would raise DXY further.
Market Expectations for Future Rate Cuts
With two more FOMC meetings by the end of the year, investors are more confident in the Fed maintaining the rate. In contrast to the prior 40% fed fund futures bet, the probability for another hike lowered to 34%.
By present market expectations, the first rate cut (ease) is on the table by August 2024.
Market Expectations
However, as excess savings depleted to the pre-lockdown level of March 2020, this is likely to change. Per the Federal Reserve report on household finances, only 20% of the top wealthiest have more cash, at 8% above. By June, households held an aggregate excess savings of just under $190 billion.
At the same time, US credit card debt hit a record $1 trillion in August, with household debt rising to $17.06 trillion. This debt will have to be serviced under a higher interest rate regime for now. By the same token, the US net interest payments, as a percentage of government receipts, increased to 15%.
In other words, the government’s tax revenue is increasingly drained into merely servicing its debt, which is monetized through bond issuance. This represents immense pressure to cut rates as it becomes difficult for the USG to finance spending.
As the 10-year Treasury yield surges to the highest level since the Great Recession, at 4.6%, long-term federal deficits are poised for new records. Given how this is likely to create a debt crisis, interest rate cuts should be coming sooner rather than later.
Related Articles
The Fed Pauses: What Comes Next?
By Michael Lebowitz - Dec 06, 2023
4
After hiking rates by 5.25% since March 2022, the Fed is in a wait-and-see period, commonly deemed a pause. Since the Fed started hiking rates, inflation has declined meaningfully...
Risk-Off Tone Resurfaces as Stocks Retreat, US Dollar Strengthens:...
By Michael Kramer - Dec 06, 2023
4
Stocks finished flat, with the S&P 500 falling just six bps. Most of the weaknesses yesterday came in the equal-weighted S&P 500, with the RSP ETF falling by almost 85...
S&P 500 E-Mini: Tight Trading Range at September High Likely
By Al Brooks - Dec 06, 2023
Emini daily chart The S&P 500 Futures are forming a tight trading range at the September 1st high. Traders want to see a test of the moving average, around 4,515. Because traders...
The Fed Likely to Hold Rates Steady as August PCE Shows Inflation Cooling
Comments (2)
waseem Khan
Oct 03, 2023 11:52AM ET
ayoubsiyal
0
0
Steve Hauser
Sep 30, 2023 1:21PM ET
Inflation isn't cooling
1
0
Mike Denver
Sep 30, 2023 1:21PM ET
Tim is a fool
1
0
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.