Inflation edges further from the Fed's target
The Commerce Department reported Thursday that its personal consumption expenditures price index climbed 0.5% from August to September and stood 3.6% higher than a year earlier. Economists surveyed by LSEG had projected both numbers, so the release brought no surprise. Core PCE, which strips out food and energy, advanced 0.3% month over month and 3.1% year over year, also matching forecasts.[S1][S5]
Both gauges moved up from August, when headline PCE was 3.4% and the core measure was 3.0%. Goods prices ran 3.9% above their year-earlier level, while services rose 3.5%. The personal savings rate slipped to 3.8% of disposable income from 4.0% in August, continuing a slide from 6.2% in April 2025 and 5.6% in January 2026. Policymakers watch the headline figure for the path back to 2% but treat core as the cleaner signal.[S1]
Growth outpaces forecasts as consumers keep spending
Separately, the Bureau of Economic Analysis put third-quarter gross domestic product growth at an annualized 3.4% in its advance estimate, ahead of the 3.2% economists expected. Two revisions will follow. Personal consumption drove the expansion, and federal government consumption reached its strongest level in at least five years, according to Bret Kenwell of etoro, who said demand remains resilient even though it does little to relieve the price pressure tied to it.[S1][S3][S4]
James McCann of Edward Jones described the American consumer as seemingly tireless and pointed to an emerging boom in artificial intelligence investment as forces keeping growth well above trend. He cautioned that headwinds, including rising oil prices and tighter financial conditions, should temper activity somewhat late in the year, but judged the economy to be in good shape.[S1]
Rate expectations and the market reaction
Traders continue to anticipate a quarter-point increase at the December meeting, which would lift the federal funds target to a range of 4% to 4.25%. The CME FedWatch tool showed a 79.6% probability of such a move, a touch below the prior day's 84.2% but above 73.3% a week earlier. McCann said Chair Warsh gave few firm signals at the FOMC meeting, yet an upbeat view on growth, dissents favoring a hike and a message that financial conditions were not tight all suggest tightening resumes in December, with possibly one more increase in 2027.[S1][S6]
Equities weakened after the opening bell Thursday. The S&P 500 fell more than 0.4%, the Dow Jones Industrial Average lost over 0.3% and the Nasdaq Composite dropped more than 1.4%.[S1]
