Markets with Megan

Are rising inflation rates set to challenge the recent market rally? In our latest update, we unpack September's Core PCE reading, showing the largest monthly increase since April, reflecting pressures in service costs, including healthcare, and unexpected growth in goods prices like clothing and vehicles. With Core PCE up 2.7% over last year, just above forecasts, we examine the key factors influencing inflation and their potential impact on markets.

We also address concerning trends in personal savings and rising consumer credit use—behaviors that could add complexity to the Fed's path on interest rates. Hear how these dynamics have affected equity markets and bond yields, providing a balanced perspective on the economic forces at play. Stay informed with our latest market insights, and don’t forget to explore past episodes on our website MarketswithMegan.FM.

Well, inflation wasn't as expected today and it's taken some steam out of this equity rally that we've seen. It is Thursday, october 31st and we got the reading this morning on CorePCE for the month of September, and CorePCE is another inflation indicator, but it's the Fed's preferred inflation indicator because it isn't as volatile as the CPI and its makeup, its consistency, is a little bit different than CPI. So let's dig into what we saw here. We did see on the month over month basis for the core reading. It was its biggest jump that we've seen since April, at 0.3%, and the prior month was also revised higher. What drove this higher was basically services, and we've been talking about the service.

Inflation is sticky and it's problematic for the Fed. It was healthcare costs and we also did see which has not been the case in recent months some increases in goods prices. We saw increases in clothing, cars, furnishings, household equipment. These are things that consumers have been less inclined to buy, but they're back at the table now, buying these goods-related items, which again is inflationary On the year-over-year level. This is what the Fed's going to look at.

Core PCE rose 2.7%. It matched last month's rise, but it was slightly higher than the expectation. The other thing that we're monitoring that we got today was that personal savings rate, because the personal savings rate now it's basically that we saw it's a year to date low. It's well below its historical average and we're seeing that consumers now they're using credit cards so much and now they're dwindling their savings to continue to spend money. This is just not sustainable in our view, especially since the Fed's going to have to look at some of these inflation indicators and say, well, maybe we can't cut interest rates the way that the market is expecting, so we're seeing that market reaction today.

Equities have been weak, bond yields have been shifting slightly higher. This is all to reflect this environment where consumers just won't stop spending and now it's creating, possibly, this stall in the progress on inflation, and that's all we have today. If you like this podcast, you can subscribe to it. Hit the alarm bell If you could share this with friends and family as well. And if you want a history of our podcast, please go to marketswithmeganfm. Thank you.