The PCE inflation report adds to the case for another big Fed rate cut in November

The Federal Reserve’s preferred measure of inflation rose in August, data showed on Friday, but overall readings showed moderate pressures heading into the fall months and added to bets on more Federal Reserve rate cuts in recent months of the year.

The Bureau of Economic Analysis’ PCE price index report showed core prices rose at an annual rate of 2.7 percent last month, just ahead of last month’s reading of 2.6 percent and on par with Wall Street’s forecast.

Core pressures, which strip out volatile food and energy prices, rose 0.1 percent this month, compared with July’s 0.2 percent rise and the Wall Street consensus estimate of 0.2 percent.

Markets are focused on the core reading of PCE inflation, which the Fed considers a more accurate representation of overall price pressures because it incorporates changes in consumer spending patterns.

The BEA’s headline PCE inflation index fell to an annual rate of 2.2 percent, just in line with Wall Street’s forecast of 2.3 percent and down from July’s 2.5 percent pace. Prices rose 0.1 percent on the month, the BEA said, after a 0.2 percent reading in July.

The BEA also noted that personal income for August rose 0.2 percent, down from July’s revised 0.3 percent pace, reflecting some softness in the labor market. Spending slowed to a 0.1% increase, compared with a 0.5% increase from the previous month.

Markets are betting that weaker inflation data in coming months will accelerate the pace of Fed rate cuts.

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Stock futures rose following the release of the inflation data, with futures linked to the S&P 500 suggesting a 10-point gain and the Dow Jones Industrial Average asking for 95 points more. The Nasdaq is priced at 40 points.

Benchmark 10-year yields fell 2 basis points to 3.768% after the data release, while 2-year notes fell 3 basis points to 3.598%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.06 percent higher at 100.535.

Related: Here’s why stocks are rising and surprise fall rally is underway

Earlier this month, the Commerce Department’s CPI inflation report showed headline headlines fell to 2.5% in August, the lowest since February 2021, but noted that core inflation held steady at 3.2%, with a modest increase in monthly reading.

Since then, weekly jobless claims data has surprised higher, suggesting a firmer-than-expected labor market that is underpinned by surprisingly solid GDP growth in the final days of the third quarter.

This has led to concerns of another round of higher inflationary pressures in the final months of the year.

More economic analysis:

• Stocks are bracing for a big push from the Fed after rethinking its summer rate cut
• Fed offers big rate cut, signals focus on cooling labor market
• Fed Dot Plot is more important than a rate cut

That said, CME Group’s FedWatch continues to reflect favorable signals from the Fed and now suggests a 51% chance of another 50 basis point rate hike from the November meeting. The indicator also sees the benchmark federal funds rate falling to 4.125% by the end of the year.

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