The Fed’s Preferred Inflation Gauge Stays Cool, Keeping a Rate Cut Imminent

What Happened?

The core personal consumption expenditures (PCE) index, the Federal Reserve's preferred measure of inflation, rose by just 0.1% in August, below economists’ expectations of a 0.2% increase. This marks the second consecutive month of subdued inflation, providing further evidence that price pressures are easing.

Why It Matters

• The Fed's target inflation rate is 2%, and the PCE index has now been below that level for three consecutive months.
• This suggests that inflation is under control, giving the Fed more room to cut interest rates.
• A rate cut would help stimulate the economy and boost job growth.

What's Next?

The Fed is widely expected to cut interest rates at its next meeting in September. The PCE data will likely reinforce this expectation, as it indicates that inflation is not a major concern at this time.

However, the Fed will also be watching other economic data, such as the labor market and consumer spending, before making a decision.

If the economy continues to grow and create jobs, the Fed is likely to cut rates. However, if the economy weakens, the Fed may hold off on a rate cut or even raise rates.