Dow Jones Industrial Average stumbles after PCE inflation rises

• The Dow Jones eased lower on Friday, testing below 45,500.
• Equities recoiled after US PCE inflation metrics rose in-line with forecasts.
• Despite fresh inflation pressure, markets are still banking on a September rate cut.

The Dow Jones Industrial Average (DJIA) softened on Friday, easing back below 45,500 as stocks retreated due to another uptick in US Personal Consumption Expenditures Price Index (PCE) inflation figures. Despite rising inflation pressures, markets are still betting that the Federal Reserve (Fed) will deliver a fresh interest rate cut in September.

Equities falter post-PCE but only slightly

The Dow Jones is down, but certainly not out. The major equity index is still holding firmly onto near-term gains and remains within striking distance of all-time highs north of 45,760. Bullish momentum has dried up for the time being, but the Dow is still finding intraday support near the 45,500 region.

US core PCE inflation rose to 2.9% YoY in July, another step up in price pressure as tariff-led inflation effects continue to pull forward into main inflation metrics. July's core PCE figure is the highest print since March of this year, functionally erasing five months of work on taming inflation.

Fed rate cut hopes remain elevated

Markets are still banking on an interest rate cut from the Fed on September 17. According to the CME's FedWatch Tool, rate traders are still pricing in nearly 90% odds that the Federal Open Market Committee (FOMC) will deliver a quarter-point cut when it convenes next month.

Despite rising inflation pressure, the Fed may very well be arm-twisted into delivering interest rate cuts before achieving further momentum to their 2% inflation target. US employment figures took a sharp tumble through the second quarter, and a further backslide in hiring may force the Fed's hand. The next round of key employment data will drop late next week.

Dow Jones daily chart