The August PCE inflation print brought down the probability of the Fed raising rates by 25 basis points in October down to 38% from 70% just two days prior. The probability had declined on Tuesday following remarks from New York Fed President John Williams who said that there was no rush to raise rates in October. 3 Min Read Benchmark indices on Wall Street reversed sharply from the day's high on Wednesday, September 30, despite a softer-than-expected inflation print for August, that further brought down the probability of the US Federal Reserve raising interest rates in October. The Dow Jones ended with losses of 450 points overnight, reversing nearly 600 points from the day's high.
The index had opened higher after the inflation data. The S&P 500 also reversed 70 points from the day's high to end 0.25% lower, while the Nasdaq outperformed both its peers, ending 0.2% higher, but not before cooling off 250 points from its own day's high. August's Personal Consumption Expenditure (PCE) inflation, the Fed's preferred inflation gauge rose 0.3% month-on-month in August, in-line with expectations.
The year-on-year figure of 3.4% was softer than the 3.7% projection. Excluding energy and food costs, the Core PCE rose 3% year-on-year, also better than the 3.3% expectation. The August PCE inflation print brought down the probability of the Fed raising rates by 25 basis points in October down to 38% from 70% just two days prior.
The probability had declined on Tuesday following remarks from New York Fed President John Williams who said that there was no rush to raise rates in October. Rest of the economic data reported was fairly resilient as the ADP Private Payrolls data showed that the private sector added 90,000 jobs in September, higher than the estimate of 75,000. The Q2 GDP figure was also revised higher to 2.2% in the third estimate, compared to the unchanged 1.5% figure in the previous projection.
Consumer spending also rose at the fastest pace in a year. Calling the economic data resilient, Minneapolis Fed President Neel Kashkari said that inflation is "still too high" and the recently reported PCE data does little to alter his story on how to deal with inflation. Why Did US Markets Reverse Course?
Despite the softer-than-expected inflation print, the bond markets continued to sell-off, with the 30-year yield making a new high of 5.63%. The 10-year also moved towards the 5.3% mark on the upside. The two-year yield fell to as low as 4.82% after the inflation print as it is the most sensitive to Fed policy moves, but soon recovered all the losses to return to the 4.9% mark.
A combination of resilient economic data, higher government debt, and continued corporate supply kept yields elevated. The US treasury also announced a $6 billion buyback of 10 and 20-year notes on Thursday. Analysts believe that a strong results season, coupled with the end of the mid-term polls will help the market breakout and move back towards the record high levels.
Micron reported results after market hours for the fourth quarter of fiscal 2026. The numbers and the company's guidance were both better than expectations but it warned of some margin compression in the ongoing quarter. After a 240% year-to-date and 540% surge in the last 12 months, shares of Micron wavered between gains and losses in afterhours trading once the results were announced.
Later today, Wall Street will look out for the weekly jobless claims data and the manufacturing PMI print, along with the auto sales figures for September. All eyes are now on Friday's September jobs report. First Published: Oct 1, 2026 5:06 AM IST Home Market News Dow Jones falls over 570 points from highs despite softer inflation print; Here's why
Source: CNBC TV18
