Cooler Inflation Data Lowers Odds of Fed Rate Hike

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose 3.4% in August, matching July but falling short of the 3.7% analysts expected, significantly reducing the odds of an interest rate hike at the Fed's next meeting. Core PCE, excluding food and energy, held steady at 3%, also below the 3.3% consensus. Following the report, market futures pricing showed the probability of a 25-basis-point rate hike to 4%-4.25% dropped to 37%, down from 51% the previous day and 70% a week earlier. The Fed will weigh additional data, including Friday's employment report and October's Consumer Price Index, before its Oct. 27-28 meeting. While cooling inflation is a bullish sign for stocks, the S&P 500 rose only modestly, as AI developments remain a dominant market force.