Feds preferred inflation gauge cooler than expected, likely delaying rate hike to December

The Federal Reserve’s preferred inflation gauge in August came in cooler than expected — likely delaying another interest-rate hike until December.The core PCE price index, which excludes volatile food and energy prices, rose 0.2% over the month at a 3% annual rate, the Bureau of Economic Analysis said Wednesday.That came in tamer than estimates of a 0.3% monthly pace and a 3.3% yearly rate.Overall PCE rose 0.3% over the month at a 3.4% annual rate, also below estimates of a 3.7% yearly rise. Economists had been expecting a dip in the monthly inflation reading, since the BEA adjusted its methodology for how it measures prices for legal services, software and computer accessories and portfolio management this month.

It’s unclear how much of the change in the monthly figures is from the data collection tweak and from actual price softening.The Fed will receive two more inflation reports – September’s Consumer Price Index and Producer Price Index – before its next meeting on Oct.28.

But officials prefer to look at the core PCE since it filters out temporary shocks, like the energy crisis amid the war in Iran, making it a better measure of long-term trends.Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in a Wednesday note that while inflation came in lower, it still remained far above the Fed’s 2% goal.In the meantime, another batch of data out Wednesday showed the job market and economic growth remained resilient.“Given the mixed nature of the data, it shows that the Fed was probably correct in raising rates this month, but if the inflation data improves they might be able to skip a meeting or at least raise rates less than the three times in a row that many were worried about,” he wrote.Stocks rose after the economic releases, though only modestly.

Zaccarelli noted that a strong earnings season and “getting past the midterm elections” could help markets reach new highs before the end of the year.Sign u...