The Federal Reserve’s preferred inflation gauge cooled more than expected but remained elevated well above target in August as consumers continued to face price pressures.
The Commerce Department on Wednesday reported that the personal consumption expenditures (PCE) index rose 0.3% on a monthly basis in August and was up 3.4% from a year ago. Both figures were cooler than the expectations of economists polled by LSEG, who predicted 0.4% and 3.7%, respectively.
Core PCE, which excludes volatile measurements of food and energy prices, was up 0.2% on a monthly basis and 3% year over year. Both figures were cooler than economists’ expectations of 0.3% and 3.3%, respectively.
WHY THE FED ISN’T READY TO DECLARE VICTORY ON INFLATION
Federal Reserve policymakers are focused on the PCE headline figure as they try to bring inflation back to their long-run target of 2%, though they view core data as a better indicator of inflation.
Compared with July’s readings, headline PCE was flat at 3.4%, while core PCE was also unchanged at 3%. Those readings follow the BEA’s annual benchmark revisions to PCE inflation data, which lowered July’s readings for headline PCE from 3.7% to 3.4% and core PCE from 3.3% to 3%.
Goods prices were up 2.7% from a year ago after rising 0.3% in August.
Services prices were 2.5% higher than last year after an increase of 0.3% in August.
FEDERAL RESERVE HIKES INTEREST RATES FOR FIRST TIME SINCE 2023 AMID STUBBORN INFLATION
The personal savings rate as a percentage of disposable personal income was 4.1% in August, down from 4.6% in July.
Since the start of 2025, the personal savings rate has declined from a peak of 6.2% in April 2025, and it began this year at 5.6%.
What experts are saying
Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said that the August PCE inflation report was mixed and that “Inflation was stable on the month, but the trend was revised lower.”
“Inflation is a little closer to target than in the prior release, but that is because of how inflation is measured, not how it’s trending. You don’t need your glasses on to tell the difference between 3% core PCE inflation and a 2% target,” Adams said. “For the Fed, the August PCE report is a glass half empty. Inflation’s trend is lower but still not close to their target and not improving, either.”
Bret Kenwell, etoro U.S. investment analyst, said that the “cooler-than-expected inflation report will likely be a relief for Wall Street, particularly as investors hope to see the recent rise in Treasury yields cool and expectations for a Fed rate hike next month fade.”
“The inflation battle is hardly over, but today’s numbers are a step in the right direction. A meaningful retreat in oil prices would help ease inflationary pressure, but the immediate focus is on Treasury yields, which have risen sharply over the past month even as equities have remained relatively resilient,” Kenwell added.
WHAT WARSH’S JACKSON HOLE SPEECH SIGNALS ABOUT WHERE INTEREST RATES ARE HEADED
What does it mean for the Fed and interest rates?
The Federal Reserve hiked interest rates for the first time in three years when it met earlier this month to a target range of 3.75% to 4%, lifting the benchmark federal funds rate by 25 basis points.
The PCE inflation report helped shift expectations around the central bank’s next policy meeting in October, with the CME FedWatch tool now showing a 65.1% chance the Fed holds rates steady, with a 34.9% chance of a further 25-basis-point hike.
Those odds were essentially split evenly yesterday, while a week ago the CME FedWatch tool showed a 70.9% chance of an October rate hike.
