Macro Space: PCE Data Eyed
Thursday’s data showed that US economic activity grew by an annualised rate of 3.8% in Q2 25, according to the Commerce Department’s final estimate. This marks a 0.5 percentage point revision from 3.3% in the second estimate, primarily bolstered by more robust consumer spending. The contraction in Q1 (0.5%) was attributed principally to import surges as businesses accelerated their purchases ahead of tariff implementation.
We also received the latest weekly jobless claims report for the week ending 20 September, showing a decrease to 218,000. This print came in softer than the consensus estimate of 235,000 and below the 232,000 reading from the previous week. Continuing claims, however, remained stable at 1.926 million (week ending 13 September).
The Fed clearly needs to strike a balance here, given that GDP is rising, inflation is elevated (well above target for years now), and the job market is slowing. As a result, all eyes will be on the August PCE inflation data today at 12:30 pm GMT. Over the last few months, it has edged higher, but today’s print is expected to remain steady at 2.9% for the YY core measure, while a modest uptick is expected in the YY headline number to 2.7% (from 2.6% in July). I have added a screenshot of the LSEG calendar below, which shows the forecast distribution.
Should PCE data come in higher-than-expected – specifically if core and headline reach the upper estimate range of 3.2% and 2.8%, respectively, with both printing new cycle highs – this could temper Fed rate-cut bets and weigh on yields and the USD. As noted above, markets are largely expecting two rate cuts this year, which aligns with the Fed’s latest SEP report. Of course, if today’s data comes in line (or slows), this would likely see markets fully pricing in October’s meeting and add fuel to the USD’s recent upside.
