Market Sentiment and Inflation Insights

The recent rise in oil prices has propelled the 10-year Treasury yield upward, and the panel on The Big Money Show is weighing in on market sentiment. They delve into various topics, including President Trump’s foreign policy concerning Iran and the implications of diesel export bans.

In August, the Federal Reserve’s favored inflation metric, the personal consumption expenditures (PCE) index, showed a cooler than anticipated rise. However, the numbers indicate persistent price pressures for consumers. According to the Commerce Department, the PCE index increased by 0.3% month-over-month in August and was up 3.4% from a year earlier. These figures were below economists’ predictions of a 0.4% increase and 3.7% year-over-year rise, respectively.

When we look at the core PCE, which excludes the more volatile food and energy prices, it rose by 0.2% monthly and 3% compared to a year ago. Again, these numbers fell short of economists’ expectations of 0.3% and 3.3% for the respective periods.

Why the Fed Remains Cautious

Federal Reserve officials are fixated on the PCE headline number as they aim to steer inflation back to a target of 2%. They believe core data offers a better picture of inflation trends. When compared to July’s figures, the headline PCE was steady at 3.4%, as was the core PCE at 3%. It’s worth noting that the Bureau of Economic Analysis’s recent adjustments to PCE inflation data revised July’s headline figure down from 3.7% to 3.4% and core PCE from 3.3% to 3%.

Looking at the details, prices for goods went up by 2.7% year-over-year following a 0.3% increase in August. Prices for services rose by 2.5% compared to the previous year, also after a 0.3% rise in August.

Interest Rate Hike Amid Stubborn Inflation

The personal savings rate relative to disposable personal income decreased to 4.1% in August, down from July’s 4.6%. Since early 2025, the savings rate has dropped from a peak of 6.2% in April and started the year at 5.6%.

Expert Opinions

Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, commented on the mixed signals from the August PCE inflation report, noting, “Inflation was stable on the month, but the trend was revised lower.” He further explained, “While inflation is slightly closer to the target than previously, that’s mainly due to measurement adjustments rather than any true improvement. The difference between 3% core PCE inflation and the 2% target is glaring.”

Bret Kenwell, an analyst at eToro, expressed that the report, being cooler than expected, is likely a relief for Wall Street. It may alleviate concerns about rising Treasury yields and the potential need for a Fed rate hike next month. He added, “The inflation battle isn’t over, but today’s numbers feel like progress. A significant decline in oil prices could relieve some inflationary strain, yet the immediate spotlight is on the recent spike in Treasury yields, which have surged lately despite a robust performance in equities.”

Implications for Fed Policy

The Federal Reserve raised interest rates for the first time since 2023 during its recent meeting, setting a target range of 3.75% to 4%, with a 25 basis points increase to the benchmark federal funds rate.

This PCE inflation report has influenced expectations for the Fed’s next policy meeting scheduled for October. The CME FedWatch tool shows a 65.1% likelihood that the Fed will maintain current rates with a 34.9% chance of an additional 25-basis-point increase. Just a week ago, the chances for a rate hike were reading at 70.9%.