The core PCE inflation of 2.8% in September, which the Federal Reserve is concerned about, is generally in line with expectations, while actual personal spending stagnates

A key inflation indicator in the U.S. for September largely met market expectations, further giving the green light for the Federal Reserve to consider interest rate cuts in December. Additionally, consumer spending in the U.S. stagnated in September, indicating that Americans were already feeling financial strain before the government shutdown.

According to data released by the Bureau of Economic Analysis (BEA) on Friday, the U.S. September PCE inflation indicators are as follows:

The U.S. September PCE price index rose 0.3% month-on-month, expected 0.3%, previous value 0.3%.

The U.S. September PCE price index rose 2.8% year-on-year, expected 2.8%, previous value 2.7%. Although it increased from August, it remains within the range of the past two years.

Excluding the volatile food and energy prices, the Federal Reserve's preferred inflation indicator, the core PCE inflation indicator, is as follows:

The U.S. September core PCE price index rose 0.2% month-on-month, expected 0.2%, previous value 0.2%.

The U.S. September core PCE price index rose 2.8% year-on-year, with Bloomberg survey expectations at 2.8%, Dow Jones survey expectations at 2.9%, previous value 2.9%.

Commodity prices rose 0.5% in the month, marking the largest single-month increase this year, reflecting that President Trump's tariff policies continue to transmit through various sectors of the U.S. economy. Service prices only rose 0.2%. Food prices increased by 0.4%, and energy prices rose by 1.7%.

The closely watched SuperCore Personal Consumption Expenditures (SuperCore PCE) slightly declined year-on-year to 3.25%, due to stagnation in the financial services and dining/accommodation sectors.

Federal Reserve officials regard the PCE price index as the most important reference indicator for formulating inflation policy. While officials pay attention to both overall PCE and core PCE, it is generally believed that the core indicator better reflects long-term inflation trends.

Due to the government shutdown in the U.S., all data collection and economic reports were paused. This report, originally scheduled for release on October 31, was ultimately delayed for several weeks. The BEA stated that the release date for the October data, originally scheduled for November 26, has not yet been rescheduled.

Income Exceeds Expectations, Spending Below Expectations

In addition to inflation data, the report also disclosed income and spending conditions. Among them, the income growth rate exceeded market expectations by 0.1 percentage points, while the spending growth rate was below expectations:

• U.S. personal income rose 0.4% month-on-month in September, expected to rise 0.3%, previous value 0.4%. This is the wage and salary figure not adjusted for inflation. Real disposable income has stagnated for the second consecutive month. Asset income, an important source of support for high-income households, has rebounded.
• After adjusting for price changes, consumer spending in September showed almost no change. U.S. real personal consumption expenditures (PCE) were 0% month-on-month in September, expected 0.1%, previous value revised down from 0.4% to 0.2%. Personal spending grew by 0.3% in September.
• The savings rate remained unchanged at 4.7% in September, the lowest level since December 2024 for both August and September.

According to BEA data, the slowdown in consumer spending is largely due to the largest decline in goods spending since May. This is because goods prices rose by 0.5% month-on-month, the largest increase so far this year. Consumers are generally facing upward price pressures on non-durable goods such as gasoline, clothing, and food.

After adjusting for inflation, spending on automobiles and parts, clothing, and footwear all declined. A report released last week also showed that unadjusted retail sales in September slowed overall, with substantial declines in categories such as electronics, clothing, and sporting goods.

The anxiety of American consumers is also reflected in recent corporate earnings reports. A weakening labor market and tightening household finances have put pressure on middle-income consumers targeted by companies like Kroger; meanwhile, these trends are driving more Americans to discount retailers like Dollar General and Five Below. However, strong performances from companies like Victoria’s Secret and Gap still indicate that consumers possess some resilience.

The report affirms a rate cut in December

Media analysis points out that the decline in consumer spending indicates that the main growth engine of the U.S. economy was already slowing before the longest government shutdown in history began on October 1. Although recent data shows robust sales performance on "Black Friday," consumers are actively seeking discounts, but concerns about the job market are intensifying, and current consumption growth is primarily driven by higher-income households.

Currently, the divide among Federal Reserve officials has rarely intensified: some officials lean towards another rate cut next week to support the slowing labor market; while others remain vigilant about stubborn inflation. Although the data in this report is somewhat lagging, the soft spending data and the moderate monthly rise in core inflation still provide support for those advocating for a rate cut. Investors almost unanimously expect that Federal Reserve officials will implement another rate cut.

Market Reaction

The U.S. core inflation rate in September, closely monitored by the Federal Reserve, was 2.8%, generally in line with expectations. Following the data release, U.S. stocks continued to rise on the previous gains, with traders expecting the Federal Reserve to announce a 25 basis point rate cut during the interest rate decision next Wednesday:

• The S&P 500 index rose by 0.5%, the Dow Jones rose by 0.5%, the Nasdaq rose by 0.5%, the Nasdaq 100 index rose by 0.8%, and the semiconductor index rose by 2.1%
• The yield on the 10-year U.S. Treasury bond slightly rose in the short term, approaching 4.12% and hitting a daily high of 4.1195% at 20:21 Beijing time; the yield on the 2-year U.S. Treasury bond increased by about 2 basis points, refreshing its daily high to 3.5479% after the data release; the 2/10 year U.S. Treasury bond yield briefly fell below +55.500 basis points, then rebounded to above +57 basis points.
• Spot gold's increase narrowed to 0.75%, approaching $4,230, having refreshed its intraday high to $4,245.52 at 22:54 before the data release.
• The ICE U.S. Dollar Index remained slightly down, stabilizing around 98.955 points. The dollar against the yen refreshed its daily high to 155.36 yen, slightly rising during the day, showing a V-shaped reversal.
• Bitcoin briefly rose to near $91,500, with the decline narrowing to about 1%, having fallen below the psychological threshold of $90,000 at 22:41