Fed Rate Cut Hangs in Balance as Crucial PCE Inflation Data Drops Today

The final major inflation report before the Federal Reserve’s December policy meeting is out this morning. The Personal Consumption Expenditures (PCE) price index for September could decide the fate of a potential interest rate cut. Markets are on edge, with traders placing high odds on a December rate reduction.

This data is the Fed’s preferred inflation gauge. Its release, delayed from October, comes just days before policymakers gather. The numbers will directly influence one of the most consequential decisions of the year for the U.S. economy.

Market Bets Face Inflation Reality Check

According to the CME FedWatch Tool, markets are pricing in an 87% probability of a quarter-point rate cut next week. This expectation has fueled a significant stock market rally in recent weeks. However, that optimism is entirely dependent on cooling inflation.

The September Core PCE reading, which excludes food and energy, was expected to hold at 2.8% year-over-year. Headline PCE was forecast at 2.7%. Both figures remain stubbornly above the Fed’s 2% target. A hotter-than-expected print could shatter market confidence instantly.

Analysts from Reuters note that while progress has been made, the “last mile” of inflation is proving difficult. Persistent price pressures in services and housing are key concerns for the Fed. Today’s data provides the last clear signal on whether those pressures are easing.

A Direct Path to the December Decision

The timing of this report is critical. With the Fed’s quiet period beginning soon, officials will have little time to publicly adjust their stance after seeing the numbers. This single dataset will be fresh in their minds as they cast their votes.

Recent economic signals have been mixed. Consumer spending has shown resilience, but manufacturing data has softened. The labor market, while strong, is gradually cooling. The Fed must balance these factors against its primary mandate of price stability.

A confirmation of continued disinflation would likely lock in a December cut. It would signal the Fed is confident enough to shift focus toward supporting economic growth. Conversely, a stall or reversal would be a major setback for doves on the committee.

The path for interest rates in 2025 starts today. The September PCE data is the definitive guidepost, telling the Federal Reserve if the economy is finally ready for lower borrowing costs.

Thought you’d like to know

What is the PCE price index?

The Personal Consumption Expenditures price index is the Federal Reserve’s preferred measure of inflation. It tracks changes in the prices of goods and services consumed by households and is considered broader than the Consumer Price Index (CPI).

Why is this report so important for a December rate cut?

It is the final major inflation snapshot before the Fed’s December 14-15 policy meeting. With no other significant data due before then, it will be the primary piece of evidence policymakers use to judge if inflation is sustainably moving toward their 2% target.

What are current market expectations for the Fed?

Futures markets, according to CME Group data, indicate an 87% chance of a 0.25% rate cut in December. Expectations for further cuts in 2025 have also increased, though those are highly dependent on incoming economic data.

How might stocks react to the PCE data?

A cooler-than-expected reading would likely boost stocks, confirming the narrative for imminent rate cuts. A hotter reading could trigger a sharp sell-off, as it would force a rapid repricing of the entire interest rate outlook for 2025.

What has the Fed said recently about inflation?

Recent minutes and speeches suggest Fed officials believe they are making progress but need more evidence. They have repeatedly stated that policy decisions will be “data-dependent,” making today’s report exceptionally consequential.