Fed’s preferred inflation measure increased in September

In a recent report released by a media source, it was noted that the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index, continues to deviate from the central bank’s target, raising concerns as the economy faces persistent price pressures. The Commerce Department reported on Thursday that the PCE index increased by 0.5% on a monthly basis in September, marking a year-over-year gain of 3.6%. These figures align with the expectations set by economists.

The Core PCE index, which excludes volatile food and energy prices, saw a monthly increase of 0.3% and an annual increase of 3.1%. These numbers were also in line with prior forecasts. Fed policymakers emphasize the PCE headline figure in their efforts to restore inflation to a long-term target of 2%, though they consider core data to be a more reliable indicator of underlying inflation trends.

In contrast to August’s metrics, where the headline PCE was reported at 3.4% and core PCE at 3%, September’s adjustments reveal a rising inflationary trend. According to the latest data, goods prices rose by 3.9% year-over-year, while service prices increased by 3.5%.

Additionally, the report detailed the personal savings rate, which as a percentage of disposable personal income, decreased to 3.8% in September from 4% in August. This marks a decline from a peak of 6.2% in April 2025, showcasing a worrying trend of diminishing savings over the past two years.

Despite these inflationary pressures, the Bureau of Economic Analysis provided a positive outlook on the economy, estimating that third-quarter Gross Domestic Product (GDP) grew by 3.4%, surpassing economists’ forecasts of 3.2%. This upward revision points to resilient consumer demand, though analysts warn that challenges remain, including spikes in energy prices and tightening financial conditions that could temper growth prospects in the short term.

Market reactions to these economic indicators were mixed. The S&P 500 Index saw a decline of over 0.4% following the release of the data, while the Dow Jones Industrial Average fell by more than 0.3%, and the Nasdaq Composite noted a drop of over 1.4%. As investors digest these multiple economic signals, there is growing speculation regarding the Federal Reserve’s plans for future interest rate adjustments, including a potential increase in December.

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