The Commerce Department said Wednesday that the Federal Reserve's preferred inflation gauge rose a softer-than-feared 0.3 percent in August and 3.4 percent over the year, while consumer spending jumped 0.9 percent and second-quarter growth was revised up to 2.2 percent, a mix that lifted U.S. stocks at the open and trimmed odds of another October rate hike.
What the August PCE and spending prints showed
The personal consumption expenditures price index, the Fed's main inflation target, rose 0.3 percent from July after a downwardly revised 0.1 percent gain, the Bureau of Economic Analysis reported. Over the twelve months through August the index was up 3.4 percent. That annual pace landed below the roughly 3.7 percent many economists had penciled in, as Reuters and other market desks framed the miss. Core PCE, which strips out food and energy, climbed 0.2 percent on the month and 3.0 percent year over year, both softer than the 0.3 percent and 3.3 percent forecasts widely cited ahead of the release. Energy still pushed the monthly headline higher: gasoline jumped 4.4 percent and energy goods and services rose 2.3 percent, while goods and services prices each rose 0.3 percent.
The same report showed households still spending hard even as incomes cooled. Personal consumption expenditures surged 0.9 percent, or about 191 billion dollars, after a barely positive July, with goods accounting for most of the lift and services adding the rest. Real spending rose 0.6 percent. Personal income increased only 0.2 percent, short of a consensus nearer 0.4 percent, and the personal saving rate held at 4.1 percent. BEA also noted methodology tweaks for legal services, software and portfolio management that economists had expected to put some downward pressure on measured inflation, so traders are still sorting how much of the soft print is genuine cooling versus statistical revision.
Stronger growth alongside cooler prices
Alongside the monthly data, BEA's third estimate lifted second-quarter real GDP to a 2.2 percent annualized rate from the prior 1.5 percent reading. The upgrade reflected stronger consumer and government spending plus investment. Real final sales to private domestic purchasers, a demand gauge Fed officials watch closely, were revised up to 4.6 percent. Second-quarter PCE inflation measures were also edged lower in the revision. Taken together, Wednesday's package paints an economy that is expanding more firmly than earlier thought while the preferred price gauge came in lighter than feared — a classic policy puzzle rather than a clean signal either way.
That mix landed after New York Fed President John Williams said Tuesday he saw no need for urgency after the September quarter-point hike, which had already pulled October odds lower. Futures in early European hours still pointed to a higher open, and after the data major U.S. indexes opened modestly green, with the Nasdaq leading as rate-hike fears eased. As Reuters reported, traders' priced chance of an October move fell into the high thirties from the mid-forties before the print, according to LSEG figures cited in market coverage, though December remains very much in play. Ten-year Treasury yields eased a few basis points from multi-year highs even as they stay elevated for the month.
What investors are watching next
For equity and rates desks at the U.S. open, the soft core print is a near-term relief valve after a week of surging long yields and a plunge in Conference Board confidence. It does not, though, erase an inflation rate still well above the Fed's 2 percent goal, nor the fact that September diesel and gasoline spikes are not yet in these August figures. Stronger revised growth and a hot spending month also keep alive the case that demand is resilient enough for another hike later this year if Friday's jobs report and the next inflation round stay firm. Several Fed speakers, including Minneapolis Fed President Neel Kashkari, are due later Wednesday and may reinforce how data-dependent the October decision remains.
Asia had already set a mixed but tech-friendly tone overnight, with Japan's Nikkei surging nearly 2 percent on AI and chip strength while China markets stayed subdued ahead of Golden Week. Europe was broadly steady. U.S. futures and cash indexes treated Wednesday's package as permission to buy the dip in rate-sensitive names without declaring victory on inflation. The open question for the next two sessions is whether bond markets keep calming or whether strong demand data and sticky energy push yields back toward those multi-decade peaks before payrolls land.
Will Friday's jobs report keep October off the table, or bring another hike back into view?
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