Key facts
- US inflation rose 0.3% in August, less than the 0.4% forecast.
- Annual PCE inflation advanced 2.6% in August, below the revised 3.4% in July.
- Core PCE inflation climbed 0.2% monthly and 3.0% annually in August.
- US consumer spending surged 0.9% in August.
- US second-quarter GDP growth was revised to 2.2%.
US stock index futures extended gains on Wednesday after inflation data for August indicated a potential pause in interest rate hikes by the Federal Reserve. The Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, rose 0.3% last month, below the 0.4% economists had forecast. The annual PCE inflation advanced 2.6%, a decrease from the revised 3.4% in July.
Excluding volatile food and energy components, the core PCE Price Index climbed 0.2% over the month, below the estimated 0.3% rise, and increased 3.0% year-on-year, matching the revised July figure. The Federal Reserve raised its benchmark overnight interest rate to the 3.75%-4.00% range this month, its first hike in three years, and has signaled further increases.
New York Fed President John Williams' comments on Tuesday that he saw "no urgency" for further action diminished the odds of an October rate hike. Financial markets priced in a roughly 51.5% chance of further policy tightening next month, down from 70% on Monday, according to CME's FedWatch Tool.
Separately, consumer spending, which accounts for more than two-thirds of economic activity, surged 0.9% in August after a downwardly revised 0.1% gain in July. A final reading of second-quarter Gross Domestic Product showed the US economy grew at a 2.2% annual pace, surpassing economists' estimates of 1.5% growth.