Fed inflation gauge shows first monthly fall in more than two years

Updated at 8:57 am EST

The Federal Reserve's preferred measure of U.S. inflation fell for the first time in more than two years last month, data indicated Friday, suggesting consumer price pressures are beginning to ease amid tumbling gas prices and an improving labor market.

The July core PCE Price Index rose 4.6% from last year, the lowest since October of last year, and just 0.1% on the month, the Bureau of Economic Analysis reported, a figure that came in firmly ahead of Wall Street forecasts.

The headline PCE index fell 0.1% on the month, in fact, echoing the flat-line inflation estimate published by the Commerce Department, and eased to 6.3% on the year. the month-on-month decline was the first since April of 2020.

Personal income rose by a weaker-than-expected pace of 0.2%, while personal spending rose by 0.1%, the BEA noted, well south of the Street consensus forecast of a 0.4% advance.

Stock Market Today - 8/26: Stocks Edge Lower Ahead of Powell's Jackson Hole, PCE Inflation Data

Wall Street futures pared earlier declines following the data release, with the Dow Jones Industrial Average indicating a modest 28 point opening bell gain ahead of Federal Reserve Chairman Jerome Powell's keynote address to the Jackson Hole central banker's symposium later this morning. Futures tied to the S&P 500 are priced for a 3 point pullback.

Benchmark 10-year U.S. Treasury bond yields fell 5 basis points lower to 3.05% following the data release, while the dollar index fell to a session low of 108.09 against a basket of six global currencies.

The CME Group's FedWatch tool is showing a 54.5% chance of a 75 basis point rate hike in September, down from around 63% prior to the PCE data, with bets now pointing to a potential pause by the end of the year.