Sonali Basak, chief investment strategist at iCapital, joins Making Money to discuss how the Federal Reserve is keeping interest rates stable, two FOMC dissents, and how the economy continues to expand at a strong pace. The Federal Reserve’s preferred inflation gauge moved further away from the central bank’s target in September as consumers face price pressures. The Commerce Department reported Thursday that the personal consumption expenditure (PCE) index rose 0.5% month-on-month in September and was 3.6% higher than a year ago. Both figures were in line with the expectations of economists surveyed by LSEG. Core PCE, which excludes volatile measures of food and energy prices, rose 0.3% month-on-month and 3.1% year-on-year. Both figures were in line with economists’ expectations. FEDERAL RESERVE MAKES DECISION ON INTEREST RATES AHEAD OF MIDDLE TERMINATIONS Federal Reserve officials are focusing on the headline PCE figure as they try to bring inflation back to their long-term goal of 2%, although they consider the underlying data to be a better indicator of inflation. Compared to August readings, headline PCE increased from 3.4% to 3.6%, while core PCE increased from 3% to 3.1%. up 3.9% year over year, while service prices rose 3.5% year over year in September. The personal savings rate as a percentage of disposable personal income was 3.8%, up from 4% in August. Over the past two years, the savings rate has declined from a high of 6.2% in April 2025 and 5.6% in January 2026. PCE inflation rose in line with expectations in September. (Will Newton/Getty Images) While inflation moved further away from the Federal Reserve’s 2% target, the Commerce Department also released its advance estimate for third-quarter gross domestic product (GDP), which grew more than expected. The Bureau of Economic Analysis estimated third-quarter GDP at 3.4%, above the 3.2% estimate of economists surveyed by LSEG. The BEA will release two subsequent revisions to third-quarter GDP data. WHITE HOUSE ECONOMIC CHIEF REVEALS WHY AMERICANS ARE NOT FEELING OPTIMISTIC ABOUT THE ECONOMY What the experts say Bret Kenwell, US investment analyst at Etoro, said that “today’s aligned PCE report offered little surprise. But the lack of a shock does not mean the lack of a problem: both the headline and core PCE rose to their highest levels since May, which which underlines that inflation remains a persistent issue. “The bright spot was the third quarter GDP report, which showed annualized growth of 3.4% and was slightly above expectations. Personal consumption led the way, while federal government consumption hit its highest level in at least five years,” Kenwell explained. “The report confirms that demand remains resilient, even if it does little to ease the inflationary pressure tied to that demand.” Federal Reserve Chairman Kevin Warsh and central bank policymakers left interest rates unchanged at their October meeting. (Daniel Heuer/Bloomberg via Getty Images)James McCann, senior investment strategy economist of Edward Jones, said that “the seemingly indefatigable American consumer and a nascent AI investment boom continue to drive the US economy, with growth well above trend.” on growth, dissidents in favor of an increase and the message that financial conditions were not tight point to a return to tightening in December and potentially a further hike in interest rates in 2027, in our view.” CPI REPORT RISE FASTER THAN EXPECTED IN SEPTEMBER, CPI REPORT SHOWS What does this mean for the Fed and interest rates? The market is still expecting the Fed to raise rates interest rate by 25 basis points in December, which would bring the federal funds rate to a range of 4% to 4.25% once implemented. The CME FedWatch tool shows a 79.6% probability that the Federal Reserve will raise 25 basis points in December, slightly below the 84.2% yesterday but higher than the 73.3% probability a week ago. What did this mean for the market? The benchmark S&P 500 index fell further. 0.4% after the market opened Thursday morning. The Dow Jones Industrial Average was down more than 0.3%, while the Nasdaq Composite fell more than 1.4%. CLICK HERE TO DOWNLOAD THE FOX NEWS APP
