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Wednesday, September 30, 2026
PCE: Cooling under pressure
What happened
The Bureau of Economic Analysis (BEA) released its August Personal Consumption Expenditures (PCE) report this morning, delivering a broadly encouraging inflation picture. The headline numbers:
- Core PCE (month-over-month): +0.2%, below the consensus estimate of +0.3%
- Core PCE (year-over-year): +3.0%, meaningfully below the +3.3% estimate
- Headline PCE (month-over-month): +0.3%, in line with expectations
- Headline PCE (year-over-year): +3.4%, below the +3.7% estimate
- Real Personal Spending (month-over-month): +0.6%, the largest monthly gain since March 2025
One area of caution with the data: the PCE Supercore, which measures services inflation excluding housing, rose 0.4% month-over-month, a notable acceleration from July’s data, suggesting price pressures have not fully abated.
Alongside the PCE data, the BEA also released its third estimate of Q2 2026 Gross Domestic Product (GDP), which came in well above expectations. Q2 GDP was revised up to +2.2% annualized, a significant upgrade from the +1.5% second estimate. For additional context, Q1 GDP was also revised up to +2.5% following annual revisions. The GDP revision reinforces the resilience of the U.S. economy, which is growing at a healthy clip even as today’s inflation report was softer.
Why it matters
PCE is the Federal Reserve's (Fed) preferred inflation gauge, making each monthly print a direct input into the Fed's rate path deliberations. The Fed has been navigating a difficult balancing act with inflation above its 2% target, yet the economy has shown signs of resilience that complicate the case. A core PCE print that comes in below consensus on both a monthly and annual basis is precisely the kind of data the Fed needs to see to justify holding rates steady.
The combination of cooling inflation and robust consumer spending is a constructive signal: it suggests the economy may be on a path to lower inflation while maintaining growth. In other words, demand remains healthy without stoking further price pressures. However, the elevated Supercore reading is a reminder that the "last mile" of disinflation remains uneven.
Initial market reaction
Markets responded swiftly and positively to the cooler-than-expected core print. Stock market futures moved higher, and both large-cap and small-cap stocks were positive in early trading. Short-term Treasury yields declined as they are most sensitive to Fed policy expectations. Market expectations for an additional Fed rate hike in October meaningfully declined, now pricing in a 36% probability of a Fed rate hike at the October meeting, down from roughly 50% before this morning’s data release. The move reflects growing conviction that the Fed may be in a position to hold rates steady at its next meeting.
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