Recent PCE inflation data has altered expectations for a rate cut by the Fed. The likelihood of such a move in September is now only 39.2%.
New PCE Inflation Data
According to the Bureau of Economic Analysis, the Personal Consumption Expenditures (PCE) index rose 2.6% year-on-year in June, exceeding analyst expectations of 2.5%. Core PCE, which excludes volatile items, also came in higher at 2.8%, up from the expected 2.7%.
Changing Market Expectations
The CME FedWatch tool indicates only a 39.2% chance of a 25-basis-point rate cut in September, down sharply from 63.7% just a day earlier. Conversely, the probability of the Federal Open Market Committee holding rates steady rose to 60.8%, suggesting a sixth consecutive meeting without a rate cut.
Political Reaction and Future Rate Trends
Former President Donald Trump criticized Fed Chair Jerome Powell, calling him 'too late, too angry, too stupid, and too political' for his role. Meanwhile, the Fed is likely to remain firm, waiting for clearer signals of inflation softening.
Given the current data and political factors, the Fed is expected to maintain current rates while awaiting further economic indicators.
