U.S. September PCE year-on-year increase rises to 3.6%; expectations for a Fed rate hike in December remain high.

Data released Thursday by the U.S. Bureau of Economic Analysis showed that the U.S. PCE price index rose 3.6% year-on-year in September, in line with expectations, after a prior reading of 3.4%; the month-on-month increase was 0.5%, in line with expectations, after a prior reading of 0.3%. Excluding food and energy, the September core PCE price index rose 3.1% year-on-year, in line with expectations, after a prior reading of 3.0%; the month-on-month increase was 0.3%, in line with expectations, with the prior reading revised to 0.3% from 0.2%. Both the 3.6% headline PCE year-on-year increase and the 3.1% core PCE year-on-year increase were the highest levels in four months. As the Federal Reserve's preferred inflation gauge, the PCE price index in September was above the official 2% target for the 68th consecutive month, meaning high inflation has persisted for nearly six years. Just one day before the data were released, the Federal Reserve voted 10-2 to keep the federal funds rate target range unchanged at 3.75%4.00%. Fed Governor Cook and Cleveland Fed President Hammack voted against the decision, advocating a 25-basis-point rate hike. At the press conference after the rate decision, Fed Chair Warsh still refused to provide forward guidance and reiterated that the 2% inflation target measured by PCE "has no soft target," indicating that he remains hawkish on inflation. The data released tonight showed that the 3.1% year-on-year increase in core PCE in September remained clearly above that target. According to the CME "FedWatch" tool, after the decision was announced, market pricing implied a probability of close to 83% that the Federal Reserve would raise rates by 25 basis points in December. Although the PCE price index data released tonight were broadly in line with market expectations, they remained above the Federal Reserve's target, indicating that inflationary pressures persist. Combined with the Fed's wording in its latest policy statement that "as more information is obtained, the Committee will be able to further assess the appropriate policy stance," this latest inflation data may support another Federal Reserve rate hike in December.