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Markets pushed next Fed hike expectations to early 2027 after PPI
Headline PPI was flat on the month, while the year over year rate fell to 4.7% from 5.5%, and markets largely discounted a jump in portfolio management fees due to a BEA methodology change.
ETF Trends reports that last week’s inflation data did not support the case for imminent Fed hikes. After the CPI and PPI releases, market expectations for the next Fed rate increase were pushed out to early 2027.
According to ETF Trends, headline PPI was unchanged on the month and declined year over year to 4.7% from 5.5%. Core services PPI reaccelerated after a negligible June, with the move driven by a 6.5% jump in portfolio management fees.
ETF Trends said markets largely looked through the portfolio management component because a forthcoming BEA methodology change will reduce how much that category influences PCE inflation. The outlet noted that the PPI index can register higher assets under management as “price” inflation when equity markets rise, but the BEA will stop tying portfolio management fees in PCE to assets under management and instead measure using wage growth starting with the September 30 annual update, applied retroactively.
ETF Trends added that estimates suggest the methodology change could lower measured core PCE inflation by roughly 0.2 percentage points. The discounting of the portfolio management component also contributed to a broader repricing described by the outlet as “less hawkish.”