U.S. underlying inflation held steady in August, matching July’s pace and economists’ forecasts. The data highlights the persistence of price pressures that Federal Reserve officials say will play a critical role in shaping interest rate decisions through the rest of 2025.
The core personal consumption expenditures (PCE) price index, which excludes volatile food and energy categories, increased 2.9% year-over-year in August, the same as July, according to the Commerce Department’s Bureau of Economic Analysis. On a monthly basis, core PCE rose 0.2%, again in line with expectations.
Headline PCE inflation came in at 2.7% year-over-year and 0.3% month-over-month, slightly higher than in July but exactly matching projections.
The Fed uses PCE as its preferred inflation gauge for the 2% target. Policymakers are weighing stubborn inflation against signs of a cooling labor market when setting monetary policy. Earlier this month, the central bank cut rates by 25 basis points and indicated that additional reductions could follow at its October and December meetings. Fed Chair Jerome Powell emphasized, however, that there is no “risk-free” approach in the current environment.
Some economists argue that inflation near 3% is still too high, while others believe it is close enough to justify further easing. “Room for rate cuts? Seems like it’s open to interpretation,” wrote Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, in a post on X.
Meanwhile, U.S. consumer spending rose 0.6% in August, up from 0.5% in July, underscoring the resilience of the economy. This followed stronger-than-expected second-quarter GDP revisions and a drop in weekly jobless claims, adding to evidence of solid momentum in the world’s largest economy.
