A slowing jobs market running against a backdrop of higher prices and a more resilient consumer. That’s the landscape that market players will be looking to avoid at the moment but it very well could be the case. The mix of US data yesterday was a better one and the reaction was clear in the dollar and stocks.

As mentioned before, the onus now is on US data to keep proving markets wrong on the Fed outlook. And yesterday’s set of releases was one step in that direction. Today is a big one though, with the PCE price index for August coming up. It is supposedly after all the Fed’s preferred measure of inflation.

The narrative that traders are running with right now is that the Fed has to cut rates to address the deterioration in labour market conditions. That as tariffs passthrough on inflation doesn’t look to have too much impact and might end up being temporary.

However, what will happen if prices data really starts to point to inflation pressures creeping higher in the months ahead? Can the Fed really chance it and bank on this rise being temporary? It’s a tough balancing act and one policymakers will be hoping to avoid making a mistake with.

Now, markets are still well expecting a 25 bps rate cut at the end of October. But if there is a time to start questioning that thinking, it could well start today. So, be wary of any upside surprises just in case.

The expectation is for the headline PCE price index to be at 2.7% year-on-year. The core estimate is slated for 2.9% year-on-year.

Morgan Stanley estimates the consensus reading to be accurate as they reaffirm a forecast of 2.72% and 2.91% year-on-year for the headline and core readings respectively.

The firm argues that inflation progress remains gradual and as core prices continue to moderate – more notably on a 6-month annualised pace – that should keep the Fed confident to ease further.