A recent inflation report for August, coupled with a significant upward revision of second-quarter gross domestic product (GDP), indicates that a second interest rate hike from the Federal Reserve may be less certain than previously thought.
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The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index, increased by 0.3% over the month and 3.4% year-over-year. Although this rate is still significantly above the Fed’s target of 2%, it is below the Dow Jones estimate of 3.7%. The core PCE, which excludes food and energy prices, also rose 0.3% and stands at 3%, below expectations.
Additionally, revised data from the Commerce Department reveals that GDP growth for Q2 was revised upward to 2.2%, up from the original estimate of 1.5%. The US Bureau of Economic Analysis (BEA) also adjusted another economic measure upward for the same quarter.
Despite a report from the Conference Board indicating consumer confidence at a near 12-year low in September, consumer spending rose by 0.9% in that month, as reported by the BEA.
Earlier this month, the Fed raised interest rates to a range of 3.75%–4.00%, marking its first increase in three years. On Monday, the probability of a second hike in October stood at 70%, but this dropped to 51.5% on Tuesday following comments from New York Fed President John Williams, who noted there was "no urgency" for an additional increase. After the recent economic data was released, the odds fell further to 41.5%.
Overall, the new data suggests that while the economy remains strong despite challenges such as high oil prices and tariffs, concerns persist, particularly in the bond market where the 10-year Treasury bond yield reached a 24-year intraday high yesterday.