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What numbers are expected in Wednesday’s PCE report?

PCE inflation, one of the main indicators the U.S. Federal Reserve uses to track price pressures, is in focus across markets. According to the Dow Jones consensus, the headline and core indexes are both expected to rise 0.3% month-on-month in August, while the annual rates are seen holding at 3.7% and 3.3%, respectively. That outlook suggests inflation remains well above the Fed’s 2% target.

The data release will also include backward-looking technical revisions. The Bureau of Economic Analysis (BEA) is updating calculations dating back to 2021 in areas including legal services, software and computer accessories, and portfolio management. Wall Street estimates suggest these changes could trim July’s annual PCE reading by 0.2 to 0.3 percentage points, bringing the 12-month rate down to around 3%.

How are Fed officials shaping the rate path?

The Fed raised its policy rate by 0.25 percentage points at its September meeting, lifting the target range to 3.75% to 4%. Of the 18 Federal Open Market Committee members who shared forecasts, only two saw no need for another rate hike this year. That backdrop has reinforced the view that fresh data alone may not be enough to shift the central bank toward a more dovish stance.

Fed Chair Kevin Warsh said employment, corporate investment and private-sector profits show the economy remains resilient. Fed Board member Michael Barr said tariffs and the prolonged war with Iran are disrupting the path back to the 2% inflation target, renewing the case for further tightening. New York Fed President John Williams struck a more cautious tone, but did not rule out the need for one more rate hike this year.

What are consumers and markets watching?

Despite persistent inflation pressure, U.S. consumers do not appear to be pulling back on spending. The market expects August consumer spending to rise 0.8%, up from 0.2% in July. Higher gasoline prices are helping drive the increase, while strong demand could support the Fed’s view that financial conditions have not tightened enough.

Key market signals

  • According to Bank of America data, debit and credit card spending rose 6.9% year-on-year in the week ended Sept. 19.
  • Over the same period, gasoline spending climbed 26.5%, while spending excluding gasoline increased 5.7%.
  • In futures markets, the odds of a rate hike in October are priced high, while the possibility of another move in December or January remains on the table.

In short, even if backward revisions slightly improve the historical picture, the latest inflation and spending data are not enough to weaken expectations for a rate hike. That makes Wednesday’s release critical not only for the inflation outlook, but also for global markets pricing the Fed’s path for the rest of the year.

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