Core PCE undershoots the entire forecast range, resetting October hike odds
August core PCE rose 0.2% m/m and 3.0% y/y, versus a 3.3% consensus and a 3.1%–3.5% forecast range; headline PCE rose 0.3% m/m and 3.4% y/y against a 3.7% estimate [SRC134][SRC135][SRC447]. The undershoot came primarily from larger-than-expected downward revisions to earlier months, with monthly core at 0.247% versus 0.27% expected [SRC447]. Final Q2 GDP was revised to 2.2% from 1.5%, and consumer spending rose 0.9%, matching forecasts, while personal income rose just 0.2% against a 0.5% estimate [SRC134]. After the release, CME FedWatch showed a 52.9% probability of holding the 375–400bp target range at the October 28 meeting versus 47.1% for a 25bp hike — a near-reversal from one week earlier, when markets assigned 70.9% odds to a hike [SRC138].
- Mechanism
- Softer realized inflation with resilient growth lowers the near-term hike probability, which compresses front-end yields but does not by itself resolve the term-premium pressure at the long end.
- Wider market or sector impact
- A lower hike path supports duration at the front end and eases the discount-rate pressure on long-duration equity sectors, though the long end's behavior remains the binding constraint.
- Wider-impact evidence
- The August core PCE print came in below every one of 51 Bloomberg analyst forecasts, driven mainly by downward revisions to prior months rather than August itself — a distinction that matters for how much of the disinflation is durable versus a methodology artifact.
- Countercase
- The methodology change itself is a live dissent: the U.S. altered how it measures portfolio management, software and legal services and revised data back to 2021, with the changes alone estimated to lower core PCE by up to 20bp [SRC141].
- Next test
- Whether the next inflation and payroll prints confirm the revised disinflation trend or reverse it, given the October 28 Fed meeting pricing [SRC138].
Entities U.S. Treasuries · rate-sensitive equities · U.S. dollar · gold.
Inspect evidence · 4 records
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SRC134 · Market reportingObserved 30 September 2026
U.S. data show annual PCE inflation at 3.4%, core PCE at 3.3%, and final quarterly GDP growth at 2.2%.* • *Headline PCE:* The PCE price index rose 0.3% month over month and 3.4% year over year; the annual reading was below the 3.7% forecast. • *Core inflation:* Core PCE increased 0.2% month over month, below the 0.3% forecast; the final annual reading was 3.3% versus a 3.6% forecast. • *Economic growth:* Final GDP growth was 2.2%, above the 1.5% forecast and prior reading. The GDP deflator was 6.1%, down from 6.4%. • *Household data:* Consumer spending increased 0.9%, matching forecasts. Personal income rose 0.2%, below the 0.5% forecast. • *Trade inventories:* The goods deficit widened to $132.6 billion; wholesale inventories rose 0.7%, while retail inventories excluding autos increased 0.1%.
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SRC135 · Market reportingObserved 30 September 2026
*US AUG. PCE PRICE INDEX RISES 0.3% M/M; EST. +0.3% *US AUG. CORE PCE PRICE INDEX RISES 0.2% M/M; EST. +0.3%
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SRC138 · Market reportingObserved 30 September 2026
*After the PCE release, CME FedWatch showed a 52.9% probability of the Federal Reserve holding its 375–400 basis-point target range at its October 28 meeting.* • *October hold:* Markets assigned a 52.9% probability to keeping the target range at 375–400 basis points. • *October hike:* Markets assigned a 47.1% probability to a 25-basis-point increase to 400–425 basis points. • *Daily change:* One day earlier, the probabilities were 49.1% for unchanged and 50.9% for a 25-basis-point hike. • *Weekly change:* One week earlier, markets assigned 29.1% odds to unchanged and 70.9% odds to a 25-basis-point hike. • *December outlook:* December odds at 10% for unchanged, 51.8% for a cumulative 25-basis-point hike, and 38.2% for a cumulative 50-basis-point hike.
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SRC447 · @DeItaoneObserved 30 September 2026
U.S. CORE PCE FALLS BELOW EVERY ANALYST FORECAST August core PCE came in at 3.0% YoY vs. 3.3% expected, below the entire range of 51 Bloomberg analyst forecasts (3.1%–3.5%). The surprise was driven primarily by larger-than-expected downward revisions to previous months, rather than August alone. Monthly core inflation was also marginally softer at 0.247% vs. 0.27% expected.