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Fed's Preferred Inflation Gauge Shows Core PCE at 3.0% in August, Below Forecasts
MacroNews4 min readAI-assisted

Fed's Preferred Inflation Gauge Shows Core PCE at 3.0% in August, Below Forecasts

The Commerce Department's August PCE report showed core inflation at 3.0% annually, below the 3.3% expected, while headline PCE rose 3.4% versus a forecast

September 30, 2026Source: cnbc.com ↗

The Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, showed smaller-than-expected annual increases in August, according to a Commerce Department report released Wednesday.

Headline PCE rose a seasonally adjusted 0.3% for the month, putting the 12-month gain at 3.4%. Economists surveyed by Dow Jones had forecast increases of 0.3% and 3.7%, respectively. Excluding food and energy, core PCE climbed 0.2% for the month, with the annual rate at 3%, below the forecast of 0.3% monthly and 3.3% annually. The Fed officially tracks headline PCE, though officials generally view core as a better indicator of longer-term inflation trends.

The Bureau of Economic Analysis adjusted the way it computes several components of the index for this report, and it was not immediately clear what impact the revisions had on the final numbers.

Stock market futures gained ground following the release while Treasury yields moved lower. Traders priced in less of a chance of a Fed rate hike in October, shifting the next expected increase to December. "This is good news for investors worried about the recent surge in bond yields, and it bolsters the case for not hiking in October," said David Russell, global head of market strategy at TradeStation. He added that the data is "relatively old" and does not reflect this month's surge in diesel prices.

Personal income rose 0.2% in August while spending increased 0.9%, against consensus forecasts of 0.4% and 0.8%, respectively. Energy costs were the primary driver of the monthly price rise: gasoline jumped 4.4%, transportation services rose 1.4%, and energy goods and services climbed 2.3%. Both goods and services prices posted 0.3% monthly increases.

Other economic data

  • Second-quarter GDP grew at a 2.2% annualized rate in the final of three estimates, up from a prior estimate of 1.5%.
  • Real final sales to private domestic purchasers rose 4.6%, an upward revision of 0.4 percentage point.
  • Second-quarter headline PCE prices rose 5% and core at 3.3%, each 0.3 percentage point below the prior estimate.

Both current PCE levels remain considerably above the central bank's 2% target. Markets had priced in a strong chance of another rate hike following the September move, but comments Tuesday from New York Fed President John Williams tempered those expectations. "With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information," Williams said, adding that another hike "may be appropriate late this year." That comment led markets to shift the next expected increase to December.

Source: CNBC

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