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US consumer spending stays strong while income growth slows, weakening rate outlook

US consumer spending grew and the Federal Reserve’s preferred inflation measure accelerated as expected in September, but income growth slowed – helping ratify the case for a plateau in benchmark interest rates near prevailing levels.

Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index – targeted by central bankers – rising 0.3 percent in September from the prior month, up 3.7 percent year-over-year – aligning perfectly with consensus estimates. The overall personal consumption expenditures index was up 3.4 percent from a year ago.

Personal income rose 0.3 percent month-over-month, decelerating slightly from August’s 0.4-percent gain, even as inflation-adjusted household outlays climbed 0.4 percent, narrowly beating forecasts for a 0.3-percent gain. This could provide more evidence of resilience in underlying consumer demand, but also carries warning signs for the future, with households unlikely to continue spending beyond their means over a sustained period.

Front-end yields are slipping and the greenback is retreating as traders modestly downgrade odds on a rate hike by January.

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