The Bureau of Economic Analysis will reveal the Personal Consumption Expenditure (PCE) index, which is the Federal Reserve’s preferred measure of inflation, for September at 8:30 a.m. ET on Friday.
This data is extremely important as it not only serves as the main inflation indicator closely monitored by the Fed but also provides crucial economic information ahead of the Federal Reserve Open Market Committee meeting scheduled for Oct. 31 and Nov. 1 next week.
Economists are predicting the following for the September PCE Report:
– The headline PCE price index is expected to rise from a 3.5% year-on-year increase in August to a 3.4% year-on-year increase in September.
– On a monthly basis, the headline PCE price index is projected to show a 0.3% increase compared to the previous 0.4% rise.
– The core PCE price index (excluding energy and food) is forecasted to decrease from a 3.9% year-on-year increase to a 3.7% year-on-year increase in September.
– The monthly increase in the core PCE price index is expected to accelerate from 0.1% to 0.3%.
In September, another closely watched measure of inflation, the Consumer Price Index (CPI), showed a 3.7% annual increase, surpassing analysts’ expectations of 3.6%.
Meanwhile, the core CPI, which excludes energy and food prices, dropped from a 4.3% year-on-year increase in August to 4.1% in September, in line with expectations.
The market does not anticipate the Federal Reserve to raise interest rates again, and expectations for the future fed funds rate seem to have stabilized within the current range of 5.25%-5.50%.
According to CME Group’s Fedwatch Tool, the market currently assigns a 98% probability of the Fed keeping rates unchanged in the upcoming meeting next week and a 75% probability of the same outcome in December.
However, if the PCE report surprises with higher figures, the market could start to consider a higher likelihood of the Fed implementing another rate hike in December.
Now, let’s examine how these 5 popular ETFs have reacted to previous inflation reports:
– SPDR S&P 500 ETF Trust (NYSE:SPY): -0.61% (1-day % change after Sept. CPI), -0.29% (1-day % change after Aug. PCE report), +0.12% (1-day % change after Aug. CPI report).
– Invesco QQQ Trust (NASDAQ:QQQ): -0.35% (1-day % change after Sept. CPI report), +0.07% (1-day % change after Aug. PCE report), +0.38% (1-day % change after Aug. CPI report).
– iShares 20+ Year Treasury ETF (NASDAQ:TLT): -2.71% (1-day % change after Sept. CPI report), +0.01% (1-day % change after Aug. PCE report), -0.02% (1-day % change after Aug. CPI report).
– SPDR Gold Trust (NYSE:GLD): -0.30% (1-day % change after Sept. CPI report), -1.03% (1-day % change after Aug. PCE report), -0.23% (1-day % change after Aug. CPI report).
– Invesco DB USD Index Bullish Fund ETF (NYSE:UUP): +0.84% (1-day % change after Sept. CPI report), +0.07% (1-day % change after Aug. PCE report), +0.07% (1-day % change after Aug. CPI report).
