Increase in the PCE Price Index: Inflation Outlook in the USA

The core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred measure of inflation, rose slightly in August, meeting economists' expectations. Like the Consumer Price Index, the PCE Index measures price changes over time for a typical basket of goods and services. The core PCE Index, which excludes volatile fuel and food prices, recorded an annual increase of 2.9% in August, aligning with economists' forecasts and the July figure. Overall PCE rose by 2.7% annually, showing a slight increase from the year-over-year comparison of 2.6% in July — the highest level since February, as data from the Commerce Department revealed on Friday. Although inflation has decreased since the Fed's key interest rate hikes in 2022 and 2023, annual price increases persist above the central bank's 2% target. The Consumer Price Index, another important measure of inflation for everyday consumer goods, also showed an increase last month. The burden of higher prices continues to challenge the American population. A recently published CBS News survey found that many are dissatisfied with the state of the economy, with two-thirds of the 2,344 surveyed US citizens indicating that prices continue to rise and expecting this trend to persist in the coming months. Last week, the Fed lowered the interest rate for the first time this year to reduce borrowing costs and support the weakening US job market. Nevertheless, there is caution in lowering rates to observe the impact of President Donald Trump's broad import tariffs on inflation and the overall economy. In recent months, Trump has repeatedly called for more aggressive rate cuts by the Fed, labeling Fed Chairman Jerome Powell as "late" and a "fool," arguing that there is "no inflation." As expected, the Fed is likely to further cut interest rates at its next meeting on October 28 and 29. According to Art Hogan, chief market strategist at B. Riley Financial, the Fed's focus, given the steady PCE level today, will increasingly be on the full employment mandate, creating room for further normalization of the Fed Funds rate. Last month, Trump attempted to dismiss Lisa Cook, a member of the Fed's Board of Governors, to gain more control over the central bank. Cook has legally challenged her dismissal, and the Supreme Court will decide whether she can continue her work while proceedings are ongoing. The Fed prefers the PCE inflation indicator released by the government on Friday over the better-known Consumer Price Index. The PCE Index takes into account changes in consumer purchasing behavior with rising inflation, such as when consumers switch from more expensive brand-name products to cheaper generic brands.