Inflation Concerns on Wall Street: The PCE Report Will Play a Critical Role

US Stock Markets Approaching Record Levels

The US stock markets have climbed back to the brink of record levels following a volatile November. However, investors continue to be overshadowed by inflation concerns and deteriorating consumer confidence. This situation creates additional unease ahead of the Federal Reserve’s (Fed) final monetary policy meeting of 2023.

Why is the PCE Report So Important?

The personal consumption expenditures (PCE) price index report to be released today will serve as a critical threshold for investors. Indeed, the report, which has been delayed due to the effects of the government shutdown, may provide vital information regarding the future of the markets.

Some analysts point out that a potential weakness in the PCE could align with the increasingly pessimistic atmosphere observed in recent days. Conversely, if the report delivers strong data, it could break the current negative sentiment.

Conflicting Economic Signals

Investors are facing conflicting signals regarding the state of the US economy. The ADP private sector employment report and consumer confidence surveys signal a slowdown in hiring and rising unemployment, while strong earnings reports from companies like Dollar General and Macy’s reflect solid consumer spending. Anticipated spending during the Black Friday shopping period indicates that consumers still possess the capacity to spend.

Expectations of Economists

According to data from the Wall Street Journal, economists predict that the headline PCE figure for September will rise by 0.3 percent. The more closely monitored core measure is expected to show only a 0.2 percent increase. On a year-over-year basis, the headline PCE is expected to remain stable at %2.9, while core inflation is anticipated to rise by %2.8.

Potential Changes in Fed and Monetary Policy

Although Fed officials are concerned about inflation remaining above the 2 percent target, they are expected to cut interest rates next week to support a weakening labor market. According to the CME FedWatch tool, investors believe there is an 87 percent chance of a quarter-point cut. A strategist from Natixis Investment Managers Solutions warns that if the unemployment rate rises rapidly, the slowing economy could pose greater risks.