Latest PCE inflation data doesn't support another Fed rate hike

With the latest PCE inflation data showing deepening disinflation amidst falling lending growth and M2, any further increase in interest rates would unnecessarily add to the risk of a recession.

While headline PCE inflation rose on an annual basis in August (3.5% vs 3.4% in July), core PCE growth fell (3.9% vs 4.3% in July), with the increase in headline PCE inflation driven by higher gasoline prices.

On a “supercore” basis (which excludes lagging housing costs in addition to food & energy prices), PCE inflation saw 3-month annualised growth fall to just 1.5% (from 2.1%), marking the slowest rate of growth that has been seen since November 2020.

Taken in totality, the latest PCE inflation data provided a significant further indication that disinflation is deepening, and that now is not the time for additional interest rate hikes.

Let’s now take a closer look at the data.

Monthly movement

Headline PCE inflation saw higher growth in August (up 0.4% MoM), but this was largely driven by a jump in the gasoline and other energy goods category (up 10.2% MoM).

It’s important to note that despite the increase in oil prices, RBOB gasoline prices have fallen significantly in recent weeks. As…