Original Article by: Ross J Burland, FXStreet
Source: https://www.fxstreet.com/news/dow-jones-industrial-average-stumbles-after-pce-inflation-rises-202508291651
Title: Dow Jones Pressured as Core PCE Data Rekindles Inflation Concerns
The Dow Jones Industrial Average (DJIA) faced significant headwinds on Thursday following the release of the Federal Reserve’s preferred inflation gauge—the Core Personal Consumption Expenditures (PCE) Price Index—which showed a modest increase for the month of July. The inflation print troubled investors looking for signs that monetary policy tightening from the Fed may be drawing to a close.
Key Market Developments:
– The Core PCE Price Index increased by 0.2% month-over-month in July, matching estimates and echoing June’s growth.
– On a year-over-year basis, core PCE inflation slowed marginally from 4.1% to 4.2%, still above the Federal Reserve’s target.
– Headline PCE also rose 0.2% for the month, in line with forecasts.
– Personal income rose 0.2% while personal spending jumped 0.8%, indicating continued consumer resilience despite rising borrowing costs.
Investors parsed these data points with caution. While the numbers didn’t surprise to the upside dramatically, they failed to deliver the softer inflation signals markets hoped for. As a result, expectations about the Federal Reserve’s policy stance remain in flux, weighing on equities, particularly the Dow.
Fed’s Rate Path Remains Uncertain
The in-line Core PCE numbers offered neither significant reassurance to dovish investors nor red flags for hawkish ones, resulting in a cautious response across markets. The data reinforced the idea that the Fed remains guided by incoming economic indicators and may prolong higher interest rates rather than initiate cuts in the near term.
– CME Group’s FedWatch tool suggests probabilities still lean toward the Fed keeping rates unchanged at the September FOMC meeting.
– Markets are now pricing in a higher likelihood of a November hike if inflation data remains sticky.
– Policymakers have repeatedly claimed they are data dependent, and with labor market strength enduring and inflation not retreating aggressively, more tightening cannot be ruled out.
The Fed’s dual mandate, targeting full employment and price stability, means officials may choose to preserve higher rates longer than originally thought unless clear disinflationary trends emerge.
Dow Jones Performance Reacts to Inflation Print
The Dow Jones edged lower following Thursday’s inflation data, falling sharply shortly after the release but moderating toward the close. At one point, the index lost over 200 points as investors assessed how the data may influence the Fed’s future moves.
– The DJIA traded around 34,892 in the early afternoon New York session.
– Other major indices showed similar patterns, with the S&P 500 and the Nasdaq experiencing moderate losses.
– Sectors sensitive to interest rate changes, such as technology and consumer discretionary, showed notable declines.
– Financials were supported mildly by a strengthening US dollar and rising Treasury yields.
The repetition of a 0.2% monthly increase in both headline and core PCE marks a continuation of disinflationary momentum, but not yet a sufficient decline to shift the Fed’s stance dramatically.
US Treasury Yields and Dollar React to Data
The bond market responded with volatility as yields gyrated post-data. The 10-year Treasury note yield rose above 4.10%, reflecting expectations of prolonged restrictive monetary policy.
Meanwhile, the US Dollar index (DXY) gained ground, benefiting from both higher Treasury yields and its safe-haven appeal amid equity weakness.
– The DXY traded above 104.00, near its highest levels in 10 weeks.
– Rising yields continue to attract foreign capital flows supportive of dollar strength.
– Currency traders now await the next Non-Farm Payrolls (NFP) data scheduled for release Friday, which could further shape expectations around the Federal Reserve’s
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