Investors increased their bets that the US Federal Reserve will hold interest rates steady in October after the US Commerce Department reported that the headline personal consumption expenditures price index, which includes food and energy, rose 3.4% in August from a year earlier, below analysts' forecast of 3.7%. On a monthly basis, headline PCE rose 0.3%, below the forecast of 0.4%. The latest FedWatch Tool from CME Group indicates that investors now assign a 62.9% probability to the Fed holding rates at 3.75-4.00% at its October meeting, up from just 49.1% previously. Minneapolis Fed President Neel Kashkari told CNBC that inflation remains too high even though the latest data came in below economists' expectations. Meanwhile, Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud, Prime Minister of Saudi Arabia, said in the royal address opening the third year of the ninth term of the Shura Council that the world is facing an energy crisis with uncertain outcomes, and that Saudi Arabia continues to supply oil to global markets to maintain energy stability. In addition, the US Commerce Department reported in its third estimate that the US economy grew 2.2% in the second quarter of 2026, higher than the first and second estimates, which were both 1.5%. Cambodian Prime Minister Hun Manet announced a new monthly minimum wage for 2027 of 212 dollars for workers in the garment, textile, footwear, and travel goods industries, an increase of 2 dollars from the current base wage of 210 dollars.
Soft PCE reading (3.4% vs 3.7% forecast) raises odds the Fed holds rates at 3.75-4.00% in October, keeping the effective funds rate from rising.
Softer-than-expected PCE inflation boosts bets on a Fed rate hold, supporting bond prices and pushing the 10Y yield lower.
