WALL STREET SURGES AS COOLER INFLATION MAKES DECEMBER RATE CUT ALL BUT CERTAIN
Traders had been bracing for September's personal consumption expenditures report — the Fed's preferred inflation gauge — which dropped a little past 10am ET.
Economists had expected the measure to rise 2.9 percent from last year, but the actual numbers came in at 2.8 percent.
All three major indexes modestly jumped following the release. They're all around half a percent in the green in early Friday trading.
Wall Street also received a boost from the University of Michigan's much-watched consumer sentiment survey for December.
It came in with a better-than-expected reading, jumping 4.5 percent compared to last month.
Both data points took on increased importance, too. They're the final inflation and consumer sentiment readings ahead of the Fed's December decision on a potential third rate cut for 2025.
'Today's in-line PCE reading for September should cement a rate cut at next week's Fed meeting,' Bret Kenwell, an investment analyst at eToro, told the Daily Mail. 'But it continues to point toward a sticky inflation situation.'
The PCE data were initially slated for release in October, but the government shutdown pushed most economic reports weeks behind schedule.
It's the measure the Federal Reserve watches most closely because it tracks how much consumers are actually spending across a wide range of goods and services, except for volatile food and energy prices.
Fed policymakers considered the PCE a cleaner, more comprehensive read on price pressures than the monthly inflation report, making it a key signal for where interest rates are headed next.
The Fed, currently led by chair Jerome Powell, has a dual mandate to lower inflation and increase job growth through the government's borrowing rates.
Rates are used as a blunt tool, swinging higher when prices climb, and plunging when unemployment accelerates.
Lowered rates, which President Donald Trump prefers, could free up money for American consumers and businesses. That in turn boosts spending, stock prices, and 401(k) accounts.
But it could also make inflation even worse.
Central bankers have been in a difficult position at the end of the year, as the CPI's inflation has steadily ticked up to three percent, a full percentage point over their goal.
But job losses are continually gathering steam, especially in the back half of the year.
Powell said after the Fed's last decision that a cut at the upcoming meeting was 'not a conclusion –– far from it.'
But optimism is swinging heavily in favor of the market's rate-cutting case, as price increases stabilize near a level above the Fed's goal and job losses compound.
Investors now see a 90 percent chance that rates will be cut during the Fed's next meeting on December 10.
'The S&P 500 is within a stone's throw of its record highs, no doubt helped along by today's confidence bump that the Fed will cut rates next week,' Kenwell said.
'Combined with strong earnings growth, we could have the makings for a solid year-end rally, but investors will need to hear the right tone from the Fed.'
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