Economic data released on Wednesday pointed toward moderating price pressures in the US economy, shifting market expectations around potential Federal Reserve policy moves. The Commerce Department reported that the personal consumption expenditures price index, a closely watched inflation gauge, came in at 3.4% on an annual basis for August, undershooting economist expectations of 3.7%. This softer reading than anticipated prompted a reassessment of the probability of a near-term rate increase.
Traders adjusted their forecasts in response to the inflation data, with market pricing compiled by LSEG indicating roughly a 35% chance of a rate hike in October, down from approximately 45% previously. The shift came as the Federal Reserve faces mounting pressure from the White House to cut rates following an increase earlier this month, marking the first such move since 2023. Chief Investment Strategist Sam Stovall of CFRA Research noted that technical market patterns had positioned equities to respond positively to any constructive economic catalyst.
Second-quarter GDP data provided additional reassurance about the economy’s trajectory, with the broadest measure of economic output demonstrating solid growth propelled by strong consumer spending and substantial business investment related to artificial intelligence infrastructure development. The employment sector also showed signs of resilience, as ADP, the nation’s largest payroll processor, reported that private employers added 90,000 jobs in September, exceeding expectations and representing an improvement from 36,000 positions added in August.
Stock market performance proved mixed following the data releases. The S&P 500 closed down 0.25% while the Dow fell 0.86%, though the Nasdaq advanced 0.24%. Despite the day’s weakness, both the S&P 500 and Nasdaq were tracking toward a second consecutive quarterly gain if momentum persists. The 10-year Treasury yield remained anchored at 5.246%, the day after climbing to its highest level since June 2007, while crude oil prices moved higher amid ongoing geopolitical tensions.
The labor department is scheduled to release its comprehensive monthly employment report on Friday, with forecasts suggesting a gain of 84,000 jobs for September, a notable decrease from the prior month’s 162,000 additions.
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