Augst Core PCE Is Due Friday. What to Expect on Inflation.

The release, due at 8:30 a.m. Eastern on Friday, will meet a market that has been on edge for more than a week since the Fed’s latest decision on monetary policy. The central bank held interest rates steady on Sept. 20 but signaled that borrowing costs may need to rise further to sufficiently tame inflation.

That message that has sent stocks falling and bond yields surging. The yield on the 10-year Treasury note—the U.S. mortgage benchmark—has risen to more than 4.6%, marking the highest levels since 2007.

“Powell referred to recent inflation reports as ‘good’ at last week’s press conference but he said more were needed before the Fed can fully admit it’s pausing rate hikes,” said Tom Essaye, founder of Sevens Report Research. “Well, a tame core PCE price index reading on Friday will give the Fed another ‘good’ report and could ease some of the Fed-based anxiety that hit markets.”

Headline PCE inflation, which includes food and energy prices, may tell a different story. Economists expect that metric to have risen 3.5% in August, up from 3.3% in July, and 3% in June. 

Renewed inflationary pressure has also been seen in the consumer price index and the producer price index. Largely to blame is a surge in energy costs in recent months. Futures for West Texas Intermediate crude, the benchmark for the U.S. market, climbed to the highest level in more than a year this week, briefly topping $95 a barrel.

Nevertheless, Friday’s data should bolster the view that the fight against inflation is ending as price growth moves back toward the Fed’s 2% annual target. Interest-rate futures now reflect a one-third chance that the bank raises rates again between now and mid-December.

The core PCE data could firm up that dovish view, or disrupt it.

Write to Jack Denton at jack.denton@barrons.com