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Inflation Edges Up in August, Keeping Fed on Watch as Consumer Worries Mount
Washington D.C. – The Federal Reserve’s preferred measure of inflation, the core personal consumption expenditures (PCE) price index, saw a slight increase in August, largely meeting economists’ predictions. This uptick comes as many Americans continue to express concerns over rising prices and the state of the economy.
The core PCE index, which omits the more volatile categories of food and fuel, registered a 2.9% annual rise in August, matching July’s figure and aligning with forecasts from financial data provider FactSet. The broader PCE index, which includes all goods and services, increased by 2.7% annually, a modest rise from July’s 2.6% and marking its highest level since February, according to data released Friday by the Commerce Department.
These inflation yardsticks, including the PCE and the Consumer Price Index (CPI), track the changing costs of a typical market basket of goods and services over time. While inflation has cooled since the Fed’s aggressive rate hikes in 2022 and 2023, annual price gains persistently remain above the central bank’s targeted 2%. The Consumer Price Index, another key gauge of everyday costs, also climbed last month.
The sustained pressure of higher prices is noticeably impacting U.S. households. A recent CBS News poll indicated widespread economic pessimism, with two-thirds of the 2,344 U.S. adults surveyed believing prices are still rising and expecting further escalation in the months ahead. This sentiment aligns with broader concerns that inflation fears are driving down consumer confidence.
In response to a softening U.S. job market, the Federal Reserve last week implemented its first rate cut of the year, reducing borrowing costs. However, the central bank has exercised caution in its approach to cuts, carefully assessing the potential impact of President Donald Trump’s tariffs on imports on both inflation and the wider economy.
President Trump has been an outspoken critic of the Fed, frequently urging more aggressive rate reductions and openly disparaging Fed Chair Jerome Powell. Despite Trump’s claims of “no inflation,” economic data points to continued price pressures.
Market analysts widely anticipate another rate cut at the Fed’s upcoming meeting, scheduled for October 28-29. “This inline PCE today can keep the focus of the Fed on their full employment mandate, which will give them room to continue normalization of the Fed Funds rate,” commented Art Hogan, chief market strategist at investment firm B. Riley Financial.
Adding to the political backdrop, President Trump previously sought to remove Lisa Cook from the Fed’s governing board in an attempt to assert greater control over the institution. Cook has challenged her dismissal in court, with the Supreme Court slated to decide whether she can remain in her position while the legal proceedings unfold.
The Fed typically prioritizes the PCE inflation gauge over the more commonly cited CPI. The PCE index is designed to better reflect shifts in consumer behavior when prices change, such as when shoppers opt for more affordable store brands over pricier national alternatives.