Data set to be released on Wednesday is anticipated to reveal a 0.3% increase in the personal consumption expenditures (PCE) price index, both at the all-items and core levels, with annual increases remaining at 3.7% and 3.3%, respectively.
These figures indicate that inflation remains significantly above the Federal Reserve's 2% target, suggesting that the central bank may not be able to ease its stance on interest rates. Dan North, a senior economist at Allianz Trade, emphasized that the core inflation rate is not decreasing, which could compel the Fed to act.
Following a recent quarter percentage point rate increase, Fed officials have indicated the likelihood of another hike by year-end, with many expecting at least one more increase in 2026.
Fed Governor Michael Barr noted that external factors, such as tariffs and geopolitical tensions, have hindered progress toward the inflation target, while New York Fed President John Williams acknowledged the impact of artificial intelligence on demand and inflation. Despite inflationary pressures, consumer spending is projected to have risen by 0.8% in August, driven partly by rising gas prices.
This resilience in consumer spending, alongside persistent inflation, complicates the Fed's decision-making process, with markets anticipating a strong chance of an October rate hike and possibly another in December or January