US PCE Inflation Misses Forecasts, Fed Hike Odds Slide — SkimNews
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- PCE Price Index rose 0.3% in August, below the 0.4% economists forecast, with July's gain revised down to 0.1% from a previously reported 0.2%.
- The Bureau of Economic Analysis revised methodology and historical data going back to 2021, lowering year-on-year PCE inflation to 3.4% in August from a previously reported 3.7% for July.
- Core PCE inflation rose 0.2% monthly and 3.0% year-on-year, with the methodology changes shaving about 36 basis points off the figure — more than the 20-30 bps economists had expected.
- Consumer spending surged 0.9% in August (real spending +0.6%), but the saving rate dropped to 4.1%, the lowest since November 2022.
- Odds of a Federal Reserve rate hike at the October 27-28 meeting fell to roughly 41.5% (from 70% on Monday), after New York Fed President John Williams said he saw "no urgency" for further action.
- Gasoline prices jumped 4.4% in August, while the goods trade deficit widened 11.5% to $132.6 billion — a drag economists expect will subtract about 2.5 percentage points from Q3 GDP.
- Wall Street stocks rose, the dollar slipped, and U.S. Treasury yields fell in immediate reaction to the data.
Why it matters: The Fed has a credible case to skip its October 27-28 rate hike, with markets pricing just 41.5% odds — down from 70% on Monday. But a 0.9% spending surge alongside a saving rate at 4.1% shows households funding resilience by drawing down savings, a vulnerability Citigroup's Veronica Clark flagged for coming months.
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