NEW YORK U.S. consumer spending increased in August, but underlying inflation moderated, with the year-on-year rise in prices excluding food and energy slowing to below 4.0%.

With gasoline price surging, inflation as measured by the personal consumption expenditures (PCE) price index rose 0.4% in August after climbing 0.2% in July. In the 12 months through August, the PCE price index advanced 3.5% after rising 3.4% in July. The annual PCE inflation is also being lifted by a lower base of comparison last year.

MARKET REACTION:

STOCKS: U.S. stock futures extended gains after August PCE dataBONDS: U.S. Treasury 10-year note yield extended its fall to 4.5363% after the data.FOREX: The dollar index increased losses after the data.

COMMENTS:

RANDY FREDERICK, MANAGING DIRECTOR OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS

"The data is as expected and that's what the markets need more than anything. If it's too strong, then there's worries about inflation, and if it's too weak, then there's worries that the Fed's already over tightened."

"I don't think it changes anything at all in terms of the Fed and I don't think anything's going to happen in November. Right now it's about a 40% probability and historically, that has to get above 65% for it (rate hike) to happen."

DANIEL PORTO, HEAD OF BANK INFRASTRUCTURE, DEAGLO, LONDON

"It's just supporting the thesis of the Fed and that it goes in line with the expectations that they are going to keep rates as they are for a longer time for the effects of the latest hikes to digest into the economy."

"These are very difficult conditions to navigate, this basically assumes that we are going to keep having modest growth sustained, relatively low employment without bursting the economy."

"(The Fed) are going to play a game where inflation is going to lead, but the real question is can we sustain this course without doing a lot of damage?"

KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH

"These are very, very good numbers. Even though the drop isn't spectacular, it's in the right direction."

"I'm very optimistic that inflation continues to decline and the Fed will note this in their reasoning about interest rates."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

"Prices are higher on a monthly basis, but overall, inflation is moving lower. It's good news for the market because the Fed is looking at the core rate."

"The Fed is not going to change its hawkish tone anytime time soon but they could be done raising interest rates, especially if inflation and labor data weaken further in the next two months."

"I don't see a soft landing. With these strikes that are going on, with high oil prices and inflation still elevated I don't see how the Fed can maneuver it. And the consumer is now beginning to feel higher interest rates - the higher cost of financing debt is beginning to impact their finances."

(Compiled by the Global Finance & Markets Breaking News team)