US core PCE holds at 3.0% as consumer spending jumps 0.9% in August

The Federal Reserve’s preferred underlying inflation gauge rose 3.0% from a year earlier in August, below the 3.3% rate markets had expected, while consumer spending increased 0.9% from the previous month. CNBC reported the softer core Personal Consumption Expenditures reading shortly after the Commerce Department release. Reuters said the overall PCE price index increased 0.3% month over month, less than the 0.4% forecast, after a downwardly revised 0.1% gain in July.

Core PCE, which excludes food and energy, increased 0.2% on the month. That was also below the 0.3% consensus estimate reported by ForexLive and followed a downwardly revised 0.1% July increase. The 3.0% annual core rate was unchanged from the revised July figure, although July had initially been reported at 3.3%. The revisions mean the underlying inflation path now looks cooler than markets understood before Wednesday’s release, even though it remains above the Fed’s 2% objective.

The annual update produced an unusually large change in the headline series. Reuters reported that the Bureau of Economic Analysis revised historical inflation data back to 2021 after changing its methodology for software and accessories, portfolio-management fees and legal services. The agency said annual headline PCE inflation was 2.6% in August after a revised 3.4% reading in July. That revision is important because earlier estimates had put July’s annual headline rate at 3.7%, a figure that had shaped forecasts ahead of the release.

Demand data showed a different side of the economy. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 0.9% in August after a downwardly revised 0.1% rise in July, according to Reuters. Action Forex also reported the 0.9% increase, noting that it beat the 0.8% forecast. Personal income rose only 0.2%, slowing from a revised 0.3% increase in July and falling short of expectations, leaving spending growth considerably stronger than income growth during the month.

The figures arrive after the Fed raised its benchmark overnight rate to a range of 3.75% to 4.00% earlier in September, its first increase in three years. Reuters said expectations for another October move had already eased after New York Fed President John Williams said there was no urgency for further action. Before the PCE report, futures implied a 51.5% probability of another rate increase next month, down from 70% on Monday. The softer inflation figures give policymakers more evidence of easing price pressure, while the spending increase shows that household demand remained resilient.

What it means for traders: for EUR/USD and XAU/USD, the immediate question is how markets balance softer inflation against strong consumer demand. Lower-than-expected monthly PCE and core readings can reduce pressure for an October rate increase, while the 0.9% spending gain may limit confidence that demand is cooling quickly. Traders will next watch market-based rate expectations, Treasury yields and Friday’s U.S. employment report for confirmation. Any further evidence of softer inflation or weaker labor demand would reinforce the case for patience, while renewed price pressure or unexpectedly strong jobs data could restore expectations for tighter policy.