New PCE reading supports case for smaller Fed rate cut in November

Published On Sep 27, 2024, 10:33 AM

Recent data on inflation shows that the core PCE index rose 2.7% year-over-year in August, which suggests that the Federal Reserve may only opt for a smaller interest rate cut of 25 basis points in November, rather than a larger cut of 50 basis points. While some believe the Fed is confident inflation is decreasing, concerns linger about the labor market. The prevailing view is for continued small 25 basis point cuts through early next year unless job market conditions worsen significantly.

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Investors should consider that if the Fed sticks to smaller rate cuts, this may support equity markets as lower interest rates can boost borrowing and spending. Additionally, banks and financial institutions may face pressure from tightening margins due to lowered rates on loans, impacting their stock performance.

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