US’ rising personal consumption, weak employment boost Fed rate cut estimates

By Burhan Sansarlioglu, Ali Canberk Ozbugutu, and Emir Yildirim

ISTANBUL (AA) — The US’ core personal consumption figures, consumer inflation estimates, and weak employment data all support expectations of a Fed rate cut this week, according to analysts.

The Personal Consumption Expenditure (PCE) index rose 0.3% in September, in line with forecasts, according to the Commerce Department.

The core PCE price index excluding food and energy — the Fed’s inflation benchmark — climbed 0.2% month-on-month and 2.8% year-on-year in September.

While the index rose within estimates on a monthly basis, the annual increase came in slightly below the 2.9% forecast. This followed August’s 0.2% monthly and 2.9% annual increase.

Consumers’ short-term inflation expectations fell from 4.5% to 4.1% in December, the lowest level since January, while long-term inflation estimates dropped from 3.4% to 3.2%.

The Fed’s likelihood of cutting rates in its meeting this Tuesday and Wednesday stands at 88%, according to money market expectations.

- US retail, business services, transportation, and logistics sectors see job cuts

James Knightley, chief international economist at ING, told Anadolu that around 90% of all US jobs over the past two years came from the entertainment industry and hospitality sector, public and private education, and health care. These sectors are vulnerable to changes in public spending and weak consumer confidence.

Knightley said that over the past five months, the US has seen significant job losses across these sectors as well as in retail, business services, transportation and logistics, technology, and financial services combined

“Private surveys on hiring and layoff intentions have been weak, and there have been high-profile job loss announcements from the likes of Amazon, Target, Paramount and UPS in recent weeks,” he said. “The jobs mandate therefore argues for further rate cuts from the Fed.”

“Weaker ADP and Challenger layoff numbers and a downbeat assessment on the economy from the Fed’s own Beige Book offer further support to the rate cut narrative with 23 bp (basis points) of a 25-bp cut now discounted,” he added. “We agree and look for a 25-bp rate cut.”

Knightley also said tariff threats remain but have materialized more slowly and with less impact than previously expected. He noted uncertainty over whether inflation conditions will become more favorable for rate cuts in the coming months.

“This allows more time for disinflationary forces from lower energy prices, slowing housing rents and weaker wage growth to mitigate and push inflation closer to 2% more quickly than the Fed is forecasting,” he added.

- Fed expected to extend rate cut cycle to 2026

Philip Marey, senior US strategist at Rabobank, told Anadolu that the core PCE report supports the dovish arguments for a rate cut in December, as the index was within estimates, while personal spending was weaker than expected.

Marey said the Employment Report for September initially scheduled for Oct. 3 was published on Nov. 20, after the government shutdown ended. It showed that nonfarm payrolls rose 119,000, which he said was “a positive surprise,” while August’s nonfarm payrolls were downwardly revised from a rise of 22,000 to a decline of 4,000.

He added that the Fed is expected to continue its rate cut cycle next year.