Soft landing in sight as PCE cools and markets firm ahead of the December decision

The delayed September U.S. Personal Consumption Expenditures (PCE) report landed with the calmer inflation readings markets were hoping for. Core PCE—the Fed’s favored gauge—slowed to 2.8% year over year, with monthly price pressures broadly in line with expectations, reinforcing the case that disinflation remains intact despite autumn volatility. The delay tied to the government shutdown put extra focus on Friday’s figures, which arrived just days ahead of the December FOMC meeting.

Consumer activity looks resilient but cooler at the margin. Rather than claiming “flat” real consumption, while sentiment ticked up for the first time in five months. That pattern supports a late‑cycle shift toward caution—more saving, slightly less spending—without signaling stress.

Equities welcomed the release. The S&P 500 rose about 0.5%, the Nasdaq ~0.7%, and the Dow ~0.5% in early trading, with rate‑sensitive segments catching a bid on the softer inflation tone. The rally aligned with a growing conviction that the Fed will cut again next week, even as officials remain divided over the pace of easing.

Rates moved lower into the week and stayed subdued after the data. The 10‑year Treasury yield hovered near 4.06%, with the 2‑year around the high‑3% range, reflecting expectations for policy relief. Fed funds futures implied roughly an 87% chance of a December cut; commentary cautioned that internal divisions could still temper the path. The “higher for longer” narrative has softened but hasn’t disappeared; the next leg depends on how the Fed squares slower inflation with an uneven labor backdrop.

The dollar, commodities, and digital assets traded in line with easing inflation and lower real‑rate narratives, but precise intraday moves varied by venue and time. More broadly, crypto and metals tend to react to shifts in real yields and liquidity expectations around PCE and the Fed’s communications, which concentrated market attention this week.

The PCE print supports the soft‑landing setup—cooling inflation without evident consumer breakage—and keeps the door open for a December cut that markets largely expect. With shutdown‑induced data gaps and visible Fed divisions, the policy signal could be more nuanced than futures imply, but the macro backdrop looks steadier than it did a month ago.