Core inflation stayed steady in August, based on the Federal Reserve’s key forecasting tool. This stability hints that the central bank might lower interest rates soon.
The personal consumption expenditures (PCE) price index ticked up by 0.3% for the month, bringing the annual inflation rate to 2.7%, according to the Commerce Department. The core PCE, which leaves out food and energy costs, remained at 2.9% after a 0.2% increase that month. This aligns with the Dow Jones forecast, showing steady economic signals.
Personal income rose by 0.4%, and spending grew by 0.6%, both slightly above what analysts expected. The Fed aims for a 2% inflation target. Despite this consistency in numbers, officials indicated that they plan to cut rates two more times this year.
Reaction in the stock market was positive, with futures rising and Treasury yields falling. Interestingly, many economists thought tariffs from the Trump administration would push consumer prices higher. However, businesses managed to keep price increases under wraps through strategies like maintaining inventory levels and absorbing costs.
Prices for goods edged up by 0.1%, while services saw a 0.3% rise. Food prices increased by 0.5%, and energy prices jumped by 0.8%. Housing costs rose 0.4%. Consumer spending stayed strong, which is encouraging, especially since the personal savings rate also climbed to 4.6%.
Chris Rupkey, chief economist at Fwdbonds, noted, “Consumers really came out strong this summer, showing resilience after earlier uncertainties.” He termed it “revenge spending,” a response to past fears created by the tariffs.
Fed officials, including Chair Jerome Powell, suggest that tariffs might only provide a temporary spike in prices, rather than generating lasting inflation. Nonetheless, some policymakers remain cautious about continuing rate cuts.
Market speculation supports a rate cut in October, while enthusiasm for another cut in December is waning. The Federal Open Market Committee recently approved a quarter-point reduction in the federal funds rate, marking the first decrease of the year, which sets the rate between 4% and 4.25%.
As inflation and spending trends evolve, staying informed can help you navigate financial decisions. For more detailed figures, consider checking the Bureau of Economic Analysis for updates on the PCE index.
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