Bitcoin, XRP rally after key Fed inflation report

U.S. inflation came in softer than expected in August, giving markets fresh evidence that price pressures may be starting to ease after months of stubborn readings.

The personal consumption expenditures price index rose 0.3% month over month and 3.4% from a year earlier, below the 3.7% annual increase economists had expected.

Core PCE, which strips out food and energy, rose 0.2% for the month and 3% annually, also below forecasts.

PCE is the Federal Reserve's preferred inflation gauge because it captures a broader range of consumer spending than the consumer price index.

While the Fed officially follows headline PCE, policymakers often look closely at core PCE for longer-term inflation trends.

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Softer inflation gives crypto a lift

The report comes two weeks after the Fed raisedinterest rates by 25 basis points to 3.75%-4% on Sept. 16, its first increase since 2023, as policymakers responded to persistent inflation.

Softer inflation can strengthen the case for eventual rate cuts by suggesting tighter monetary policy is working.

But inflation remains well above the Fed's 2% target, meaning policymakers will likely want more evidence before changing course. The August figures also came after the Bureau of Economic Analysis adjusted how several PCE components are calculated, making the impact of those revisions difficult to isolate.