By Ann Saphir
Sept 30 (Reuters) – A Federal Reserve rate hike next month looked less likely Wednesday after fresh government data showed inflation rose less than expected in August, easing pressure on the US central bank to act on the eve of hotly contested national elections in November.
The Personal Consumption Expenditures Price Index rose 3.4% in the 12 months through August, the Bureau of Economic Analysis reported, after a downwardly revised 3.4% in July.
Economists had expected August’s increase would be 3.7%. Analysts noted that with inflation still running above the Fed’s 2% target, another rate hike later in the year is likely in the cards.
“The percentage of PCE price components that are rising faster than 3% per annum eased somewhat to 51% from 54%, though this is still much higher than normal, providing little reason to think that the underlying trend in inflation has improved meaningfully,” wrote Sal Guatieri, a senior economist at BMO. “This will reinforce the (Fed’s) view that some further policy tightening is needed to corral inflation back to the target.”
The Fed will get other data in the weeks before its October 27-28 meeting, including a monthly jobs report due Friday and report on September consumer inflation. Republicans are defending slim majorities in Congress in the November 3 elections, and polls show rising prices driven in part by higher gas prices because of the conflict in the Middle East are eroding support among voters.
Traders had pulled back from October Fed rate hike bets on Tuesday, after New York Fed President John Williams said he saw “no urgency” to follow September’s interest-rate increase with another one. He still thought another rate hike by year’s end would likely be needed.
On Wednesday futures contracts were pricing only about a one-in-three chance of an October rate hike, even as traders continue to price for a Fed rate hike by December.
(Reporting by Ann Saphir, Editing by Louise Heavens and Chizu Nomiyama )
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