The S&P 500 rose on Friday, marking its fourth consecutive day of gains and edging closer to its record high as investors digested U.S. inflation data that could bolster expectations for a Federal Reserve rate cut this week.
Economic data played a key role in shaping market sentiment. The Commerce Department reported that the core Personal Consumption Expenditures (PCE) price index for September rose 2.8% year-over-year, slightly below the Dow Jones estimate of 2.9%. On a monthly basis, core PCE increased 0.2%, matching expectations. Headline PCE figures for both the month and year also aligned with forecasts.
In addition, the University of Michigan’s consumer sentiment survey for December came in above expectations, providing further evidence of resilient consumer confidence despite ongoing economic pressures.
The PCE report is closely watched by the Fed as its primary gauge of inflation and offers the central bank its final inflation snapshot ahead of Wednesday’s policy decision. With inflation remaining moderate, investors are now paying closer attention to labor market trends, which have shown signs of softening in recent reports. Many market participants hope this combination will prompt the Fed to cut its benchmark interest rate by 25 basis points.
According to the CME FedWatch tool, traders are currently pricing in an 87% probability of a rate cut next Wednesday, substantially higher than just a few weeks ago. The key fed funds futures rate is targeted between 3.75% and 4%, trading near the top of that range amid persistent short-term funding pressures.
