The U.S. Personal Consumption Expenditures (PCE) deflator report for September, released this week, indicated a monthly rise of 0.4%, slightly above the market's expected increase of 0.3%. This data, in conjunction with strong U.S. Q3 GDP growth, strengthens the view that the Federal Reserve will maintain high-interest rates due to persistent inflation.
The year-on-year figure for the September PCE deflator matched market predictions at 3.4%. This figure has remained consistent for three successive months, exceeding the Federal Reserve's target of 2%. Meanwhile, the core PCE deflator for September dropped to a 2-1/4 year low of 3.7% year-on-year, still significantly above the Fed's target.
Despite robust Q3 GDP growth of 4.9% quarter-on-quarter annualized, the Federal Reserve is unable to adopt a neutral policy due to its tightening bias and high inflation. External factors such as a 70 basis point increase in the 10-year Treasury note yield, potential U.S. government shutdown on November 17, and the restart of student loan payments are also influencing this stance.
Furthermore, higher gasoline prices, sharply increased auto and mortgage rates, doubts about consumer spending, and longer-term financing rates for corporations are contributing to the economic landscape. While Federal Reserve officials have signaled against a rate hike at the next Federal Open Market Committee (FOMC) meeting, there remains an outside possibility of a rate hike in December or January.
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