The Fed's main inflation measure will be released Wednesday. Here's what to expect

• PCE inflation expected to show 0.3% monthly increases for both headline and core measures, keeping annual rates well above the Fed's 2% target at 3.7% and 3.3% respectively
• Consumer spending projected to surge 0.8% in August, supported by resilient demand with Bank of America reporting credit card spending up 6.9% year-over-year for the week ending Sept. 19
• Fed officials including Governor Michael Barr and NY Fed President John Williams indicated further rate hikes likely needed, with markets pricing in high probability of October increase following September's hike that brought rates to 3.75%-4%

Market Summary: Fed Inflation Data and Rate Hike Outlook

Key Data Release

The Personal Consumption Expenditures (PCE) price index—the Federal Reserve's preferred inflation gauge—is scheduled for release Wednesday. Consensus estimates expect monthly increases of 0.3% for both headline and core PCE, with annual rates at 3.7% and 3.3% respectively, well above the Fed's 2% target.

Policy Implications

The data is unlikely to deter further monetary tightening. Fed officials including Governor Michael Barr and NY Fed President John Williams indicated Tuesday that another rate increase before year-end remains likely. At September's meeting, 16 of 18 FOMC officials projected at least one more 2026 rate hike. The current federal funds rate stands at 3.75%-4%.

Inflation Drivers

Fed officials cited multiple factors sustaining price pressures:

• Tariffs contributing to persistent inflation
• Strong consumer spending (expected up 0.8% in August vs. 0.2% in July)
• Energy prices surging 26.5% year-over-year

Fed Chairman Warsh noted he would be "hard pressed to describe broad financial conditions as restrictive," while Barr stated tariffs have "knocked off course" progress toward the 2% goal.

Technical Note

The Bureau of Economic Analysis will revise methodology retroactively to 2021, potentially lowering July's 12-month PCE reading to approximately 3%—improving historical data without necessarily changing the forward outlook.

Consumer Activity

Despite elevated inflation, consumer spending remains robust. Bank of America reported debt and credit card spending rose 6.9% year-over-year (5.7% excluding gas). Markets are pricing in high probability of an October rate hike with another following in December or January.