PCE inflation shows prices ticked higher in September, keeping expectations for a year-end hike

A fresh reading of the Federal Reserve's preferred inflation gauge showed prices heated up in September, solidifying expectations for an interest rate hike in December.

The Personal Consumption Expenditures index rose 3.6%, in line with expectations and up from 3.4% a month earlier. On a core basis, which strips out volatile food and energy prices, PCE rose 3.1%, also in line with expectations and up a tenth of a percentage point from 3% in August. Month over month, core PCE clocked in at 0.3%, in line with projections, marking a faster pace from the 0.2% seen in August.

The data was anticipated, prompting many analysts to feel a rate hike was in order Wednesday, given other inflation readings ahead of the Fed's meeting that showed price increases last month.

Fed Chairman Kevin Warsh provided no intricate explanation Wednesday of why the central bank chose to hold rates steady after a hot reading on the Consumer Price Index and ahead of core PCE that was expected to show prices moving up at a faster pace than in August, the catalyst for September's hike.

Markets are pricing in a better than 80% chance that the central bank hikes rates in December.

While Warsh didn't send an explicit signal that the Fed would hike at its next meeting, he did say that since September, credit conditions have tightened for some businesses and households but still aren't tight, implying there's still room for the central bank to raise rates further.

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