Wall Street's focus on Thursday was on the September U.S. personal income and outlays report, which also contained the Federal Reserve's preferred inflation gauge - the core personal consumption expenditures (PCE) price index.

The core PCE deflator inched up 0.3% M/M in September, in-line with estimates but a tad higher than August's +0.2% reading. On a Y/Y basis, core PCE rose 2.7%, matching August's figure but coming in slightly higher than the +2.6% consensus.

The data pointed to an inflation situation that was largely trending in the right direction.

U.S. stocks (SP500) opened lower after the data, but that was primarily due to a post-earnings plunge in tech titans Microsoft (MSFT) and Meta Platforms (META). Here are some exchange-traded funds that track the benchmark index: (SPY), (VOO), (IVV), (RSP), (SSO), (UPRO), (SH), (SDS), and (SPXU).

See below for various reactions to the PCE report:

Justin Purohit, Seeking Alpha analyst since 2022:

"The September PCE followed a GDP report that showed the U.S. economy expanding at a pace that exceeds the Fed’s estimated long-term potential growth rate of 1.8%, as outlined in the latest Summary of Economic Projections.

The continued decline in the Fed’s preferred inflation measure, despite solid economic growth, is likely to reinforce policymakers' confidence in sustaining their current monetary policy approach. Observers should expect continued easing, with the target range likely settling between 4.25% to 4.50% by year-end."

Jacob Hess, Seeking Alpha analyst with MTS Insights:

"The September PCE report is the third report where income growth was outpaced by consumption growth. This was caused by a bounce in goods spending in September that was also evident in the GDP report. In terms of inflation, the headline PCE annual rate eased to its lowest since February 2021, but that is overshadowed by stickiness in the services and core PCE inflation rates.

Overall, the September PCE report confirms the message from the GDP report yesterday: wage gains and (near) max employment are fueling consumer spending growth as prices come down, a trend that is most evident in goods spending. This is causing some stickiness in PCE inflation which will provide some pushback against the Fed’s rate cut plans."

Tim Quinlan, senior economist at Wells Fargo:

"Prices are still a challenge for households. Even as inflation eases, the price level of many goods and services is still high and weighing on consumers moods.

The PCE deflator, the Fed's preferred inflation gauge, rose 0.2% in September, and improved on a year-ago basis, falling to 2.1%. Yet when excluding food and energy, the core PCE deflator rose a stiff 0.3%, the fastest pace in five months and is flat at 2.7% over the past year signaling stickiness in inflation. Goods prices have contributed heavily to the decline in inflation so far this year, with prices down 1.2% on a year-ago basis, whereas services prices on the other hand continue to be stickier, up 3.7%.

While still an improvement, it is clear that services inflation will need to slow for the Fed to successfully hit its 2% target. Financial markets may have shifted their focus to the labor market, but the Fed is still keeping its eye on inflation progress as it thinks about the pace of monetary easing."

Jason Furman, former deputy director of the U.S. National Economic Council:

"Overall one's view of inflation still depends on whether you believe the last several months are accurate & older data lagged/irrelevant - in which case you feel good. Or the last several months are noisy & opposite of the quirks that elevated Q1 - in which case you're nervous.

"Personally my judgment is around a 2.5% underlying inflation rate with downward pressure - but very wide confidence intervals around that. Inflation is much less of a threat than it was a year or two ago. But it appears to be a greater threat than recession."

Mohamed El-Erian, chief economic advisor at Allianz:

"I suspect that, on the whole, this is not what the Federal Reserve expected data-wise when it suddenly decided last month to increase the pace of interest rate reductions from 25 basis points to 50 bps.

According to today’s data, core PCE inflation, widely regarded as the Fed’s favorite measure, was 0.3% in September, its highest level since last April (2.7% annually, 2.1% for headline).

The distribution of the price increases will also capture the Fed’s attention, as will the robust increase of 0.4% in real consumer spending."

Collin Martin, director of fixed income strategy at the Schwab Center for Financial Research:

"The economic releases suggest the soft landing is still intact, said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research. "Although there were modest upward revisions to last month's PCE readings, September's readings came in right in-line with consensus expectations and suggest that inflation should continue to moderate."

Ernie Tedeschi, director of economics at The Budget Lab at Yale:

"Core PCE inflation came in at 0.3% in September MM / 3% annualized. Based on my model of month-to-month core, which filters out typical variation, I'd still peg underlying trend at ~2.5-2.6%."

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