Fed’s preferred inflation gauge cooler than expected in another boost for rate cut hopes

The Federal Reserve’s preferred inflation gauge came in cooler than expected in July – another boost of confidence for traders betting on an interest rate cut in September.

The personal consumption expenditures (PCE) price index stayed flat at 2.6% on a yearly basis after two straight months of increases, according to the Commerce Department’s Bureau of Economic Analysis.

Core PCE — which excludes volatile food and energy prices — ticked up 0.3% from the month before, as expected.

It rose 2.9% on a yearly basis, slightly above expectations of a 2.8% rise.

Traders currently see an 85% chance the Fed slashes rates in September, according to 30-day Fed Funds futures prices.

Even a higher PCE reading, though, would not have dashed hopes for an interest rate cut, after Fed Chair Jerome Powell signaled earlier this month that the labor market is now a larger concern than inflation.

Stocks cooled after notching new records the day before, with futures tied to the Dow Jones slipped 0.3%, while S&P 500 and Nasdaq futures fell 0.3% and 0.6%, respectively.