The Federal Reserve faces reduced pressure to raise interest rates after a key inflation measure came in below expectations, traders say.
The personal consumption expenditures (PCE) price index, tracked by the Commerce Department, reached 3.4% annually in August. Economists polled by Reuters had forecast 3.7%. The softer reading drove Wall Street's main indexes higher on Wednesday.
Market pricing shifted in response. Traders now assign about a 35% probability to an October rate hike, down from roughly 45% before the inflation data arrived, according to The Guardian. The source attributes the earlier higher probability estimate to White House pressure.
The PCE index is the Fed's preferred gauge of price pressures across the economy. A lower reading suggests inflation is cooling faster than some analysts expected, which typically reduces the case for interest rate increases designed to slow economic activity and combat rising prices.
The data comes as the Fed weighs competing pressures. Rate hikes lift borrowing costs for consumers and businesses, which can slow growth and job creation. Holding rates steady risks allowing inflation to persist. The incoming inflation number tilts the calculus toward patience on rate increases.