The Federal Reserve’s preferred measure of inflation rose steadily in August in line with economist expectations, according to U.S. Bureau of Economic Analysis (BEA) data released Friday.
The personal consumption expenditures (PCE) index rose 0.3% from July and 2.7% on a seasonally adjusted annual basis. Core PCE, which excludes food and energy prices, rose 0.2% from the month prior and 2.9% from last August.
The increase in PCE was anticipated by economists polled by FactSet and Morningstar as the Trump administration’s inflationary trade and immigration policies continue to seep into global supply chains. The BEA also reported that consumer spending stayed resilient in August, rising 0.6% compared to 0.5% in July.
Early reactions to the PCE figures suggest the inflation uptick has not eroded expectations of additional easing this year.
As of Friday morning, investor odds of a 25-basis-point cut occurring at the Fed’s October policy meeting had risen to roughly 87%, according to CME FedWatch, which tracks fed funds futures pricing.
Though the Federal Reserve elected to shore up labor markets with a 25-basis-point cut to its benchmark borrowing rate at its September policy meeting last week, sticky inflation complicates the logic supporting additional interest rate cuts in 2025.
At that September meeting, policymakers also released their quarterly Summary of Economic Projections — the “dot plot” that anonymously tracks participants’ assessments of the appropriate path of monetary policy.
The 12 voting members of the Federal Open Market Committee who set interest rate policy were joined by seven additional Fed members in that forward-looking survey. The range of responses suggested the two remaining monetary policy meetings in 2025 could be contentious.
In a series of speaking engagements over the past week, several central bankers have offered vastly different visions for future fed rate cuts.
In prepared remarks at a recent economic conference in Rhode Island, Fed Chairman Jerome Powell brought the inflation side of the Fed’s dual mandate to maintain stable prices and maximum employment back into focus, saying that “uncertainty around the path of inflation remains high.”
Strong economic indicators and rising inflation could slow the Federal Reserve’s march toward a neutral policy stance, while continued erosion of labor markets or a recessionary downturn could speed up Fed easing.
The BEA reported Thursday that real gross domestic product (GDP) rose at an estimated annual rate of 3.8% in the second quarter, a 0.5% revision higher than previously estimated. GDP decreased 0.6% in the first quarter.
