The latest U.S. economic data presented a mixed picture for the Federal Reserve, with inflation showing signs of cooling while economic growth remained resilient. The August PCE Price Index rose 3.4% year-on-year, below the 3.7% forecast, while Core PCE increased 3.0%, also coming in below expectations. At the same time, the U.S. economy grew at an annualized 2.2% in Q2, revised higher from the previous estimate of 1.5%, reflecting stronger consumer spending, investment, and government spending. Together, the data suggest that economic activity remains relatively resilient while inflationary pressures have eased somewhat, although inflation remains above the Federal Reserve’s 2% target.
This combination has reduced expectations for another rate hike at the October FOMC meeting, with the CME FedWatch tool now showing a 62.4% probability of a rate hold, up from 49.07% previously.
The shift in rate expectations initially provided support for Gold, which gained 0.51% following the economic data release. However, Gold has struggled to maintain those gains as of Thursday morning, as rising Treasury yields continue to provide a counterweight to the softer inflation data.
Looking ahead, market attention will turn to today’s U.S. PMI data, including the S&P Global Manufacturing PMI and ISM Manufacturing PMI. These releases should provide further insight into the current pace of U.S. economic activity and could influence expectations for the Fed’s next policy decision.
