The annual core inflation reading, compared with a consensus forecast of 3.3%, primarily reflected larger downward revisions to earlier months rather than August alone. The three-month annualized core inflation rate was 2%. Headline PCE inflation was 3.4% from a year earlier, below the 3.7% forecast. July’s annual headline and core readings were each revised down by 0.3 percentage point, leaving August’s rates unchanged from those revised levels.
Consumer demand remained firm: spending adjusted for inflation rose 0.6% in August, the strongest monthly gain since March 2025, while second-quarter GDP growth was revised to a 2.2% annual rate from 1.5%. The further retreat in hike bets followed New York Fed President John Williams’s statement Tuesday that “there is no need for urgency” after September’s rate increase. He said another hike “may be appropriate late this year” if the economy follows his forecast.