Fed's favored inflation gauge shows consumer prices remained elevated in September
Commerce Department releases closely watched inflation data
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The Federal Reserve's preferred inflation gauge showed that consumer prices remained elevated in September, ahead of the central bank's policy meeting next week.
The Commerce Department on Friday reported that the personal consumption expenditures (PCE) index rose 0.3% in September from a month ago and is up 2.8% from last year. Those figures were in line with the estimate of LSEG economists.
Core PCE, which excludes volatile measurements of food and energy prices, was up 0.2% on a monthly basis and 2.8% year over year. The core monthly figures were in line with expectations, while the year-over-year figure was slightly cooler.
Federal Reserve policymakers are focusing on the PCE headline figure as they try to bring inflation back to their long-run target of 2%, though they view core data as a better indicator of inflation. Headline PCE was flat at 2.8% from August to September, while core PCE declined slightly from 2.9% to 2.8%.
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Prices for goods were up 1.4% in September from a year ago, an acceleration from the 0.9% reading in August and the 0.6% readings reported in both June and July.
Durable goods were up 0.9% from a year ago in September, a slight deceleration from the 1.2% reading in August. Nondurable goods price growth accelerated in September, rising 1.7% compared with last year following a 0.7% reading in August.
Services prices were up 3.4% in September from a year ago, slightly cooler than the 3.6% reported in August.
The personal savings rate as a percentage of disposable personal income was 4.7% in September, unchanged from August.
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PCE inflation remained near 3% in September in shutdown-delayed Commerce Department report. ( Stephanie Keith/Bloomberg via Getty Images / Getty Images)
"PCE inflation is still running significantly above the Fed's 2% target, but is no longer accelerating," said Michael Pearce, chief U.S. economist at Oxford Economics. "We expect inflation will be stuck at close to 3% over coming quarters. However, once the one-off boost to goods prices from tariffs falls out of the comparison, underlying trends suggest inflation will moderate close to, but still above, 2% by the end of 2026."
Policymakers at the Federal Reserve are set to announce their next interest rate decision next week, with the market anticipating a 25-basis-point rate cut despite inflation remaining elevated.
The minutes of the Federal Reserve's late October monetary policy meeting showed divisions among policymakers over whether there should be a rate cut at the December meeting amid concerns about a softening labor market and persistent inflation.
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The Federal Reserve is set to hold a policy meeting to decide whether to cut interest rates next week. (Nathan Howard/Bloomberg)
While most participants signaled that further rate cuts would be appropriate to get to a more neutral policy rate over time, several indicated that they didn't necessarily view another 25 basis point reduction as likely to be appropriate in December.
As of Friday, the CME FedWatch tool showed an 87% chance of the Fed cutting the benchmark federal funds rate 25 basis points to a new range of 3.5% to 3.75%. A month ago, the market projected a 62% chance of a rate cut.
The release of September data was delayed by the federal government shutdown that lasted 43 days, the longest in U.S. history.
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The Commerce Department's Bureau of Economic Analysis hasn't announced when the October PCE inflation report will be released, while the November edition of the report is currently scheduled for Dec. 19.