The Federal Reserve (FED) has received new inflation signals ahead of its November FOMC meeting with the release of the Personal Consumption Expenditure (PCE) Price Index for September, a key metric for assessing inflation.
On a monthly basis, core inflation registered an increase of 0.3%, the largest rise since April, while headline inflation stood at 2.1% annually, its lowest level since early 2021.
These results seem to confirm that although inflation continues to moderate, underlying risks persist, which may continue to pose challenges for U.S. monetary policymakers.
It is important to note the upward revision in August inflation, which was raised from 2.2% to 2.3%. For core inflation, a measure that excludes more volatile components such as energy and food, the rate remained at 2.7%, challenging analysts’ expectations of a slight decline.
This has created some caution in the markets, which now expect the FED to act with restraint in its monetary policy decisions. Next week’s Federal Open Market Committee (FOMC) meeting, according to market expectations, could conclude with a 25 basis point cut, while the likelihood of an additional cut in December has slightly decreased following this data.
Regarding the impact on the foreign exchange market, the U.S. dollar has gained support. The persistence of core inflation, which could eventually lead to a more cautious monetary policy by the FED, has allowed the Dollar Index (DXY) to remain above the 104-point level. It is important to highlight that the DXY has also been supported by the “Trump trade” and a positive macroeconomic backdrop in the United States.
For Latin American currencies, this reading could be adverse, as a FED less inclined to cut rates could strengthen the dollar, putting pressure on emerging market currencies, especially at a time when several central banks in the region are already well advanced in their monetary normalization processes.
In summary, although the September PCE presents some signs of inflation moderation, the core data reveals a less clear inflation outlook, which could shape the FED’s upcoming decisions. Markets will now be closely watching October NFP data due today.
