Friday’s Personal Consumption Expenditure (PCE) price index report could validate the recent decision to cut interest rates and foreshadow the size of future cuts.

PCE Report: The monthly PCE report is scheduled for release at 8:30 a.m. ET Friday. The data will be closely monitored by investors and the Federal Reserve.

The PCE is the Fed’s preferred inflation gauge and the latest report on August’s inflation trends could help validate the recent rate cut and be used by economists and market analysts to predict if the Fed will cut interest rates another 25 or 50 basis points in November.

Market experts predict headline PCE inflation will fall from 2.5% in July to 2.3% in August. This would mark the lowest inflation rate since February 2021.

The headline figure is expected to rise 0.1% on a month-over-month basis, marking a slowdown from last month’s 0.2% increase.

Core PCE inflation, which excludes food and energy, is expected to rise from 2.6% year-over-year in July to 2.7% for August.

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What Experts Are Saying: As the first PCE report since the Federal Reserve cut interest rates, the report could be important to show if the decision was correct.

“Headline and core Personal Consumption Expenditures Price Indices – the Fed’s preferred inflation gauges – probably increased modestly in August, validating the Fed’s rate cuts last week,” Comerica Bank Chief Economist Bill Adams said.

Adams predicts that the report will show higher average hourly earnings and a rise in personal incomes, with personal spending likely rising at a lower rate.

Freedom Capital Markets Chief Global Strategist Jay Woods stressed the importance of Friday’s PCE report after the recent rate cut.

“This number will not be impacted by last week’s rate decrease, but will be watched like a hawk for those looking to critique the Fed’s latest moves,” Woods said in a weekly newsletter.  

Woods said an upward surprise could provide justification for the 50-basis point decision, while a cooler number could have experts question why a 50-basis point cut was done.

“Either way the impact should be minimal on the market.”

SPY Price Action: The SPDR S&P 500 ETF Trust SPY hit new 52-week highs of $574.71 on Thursday ahead of the PCE report. At the time of writing, the SPY is trading at $571.58.

The SPY traded higher after the June and July PCE reports and will be closely followed to see how the market reacts to the latest report.

The SPDR S&P 500 ETF Trust is up 20.8% year-to-date in 2024.

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