29 Sept 2025
The latest PCE data release aligned with market forecasts, showing no significant surprises, yet detailed analysis reveals continued increases in consumer spending across several key sectors. Despite ongoing consumer expenditures, rising prices and a softening labor market raise questions about the sustainability of this trend, maintaining market expectations for a Federal Reserve rate cut in September.
The recently released PCE data largely met market expectations, with numbers aligning closely with forecasts and causing no significant market surprise.
Continued increases in consumer spending were observed in services, durable goods, and consumer goods, consistent with trends from previous data.
Consumers increased expenditures on vehicles, financial and welfare services, and housing this month, reversing a decrease in vehicle spending noted in the previous month.
Decreased spending was recorded in energy, gasoline, and judicial services during this period.
The number of sectors experiencing reduced spending significantly decreased from four in the previous month to only two in the current month.
Overall inflation-adjusted consumer expenditures increased by approximately 0.3%, a rise bolstered by income growth and predominantly driven by goods.
Core PCE, a key inflation metric favored by the Federal Reserve, rose by 0.3% month-over-month and reached an annualized rate of 2.8%, marking its highest level since February.
The data, indicating increased prices for services and goods, heightens concerns about potentially more alarming inflation, especially when viewed alongside the impact of Trump's tariffs on the economy.
While Americans continue their spending habits, the long-term sustainability of this trend is uncertain due to concurrent rising prices and a weakening labor market.
Following the data release, stock futures and bond markets showed slight improvements, and the dollar remained strong, with no change in trader expectations for a Federal Reserve rate cut in September.
Federal Reserve Chairman Powell hinted at a probable interest rate cut at Jackson Hole, primarily citing a weakening labor market as a key rationale.
Powell acknowledged the clear impact of tariffs on prices but suggested this effect might be short-term or transient, awaiting verification in subsequent CPI data.
Before the next Fed meeting in September, upcoming NFP, CPI, and PPI data releases are anticipated to provide the Fed with a clearer perspective on inflation and the labor market.
Core PCE, one of the Fed's preferred metrics, increased by 0.3% compared to the previous month, reaching 2.8% on an annual basis, which is the highest level since February.
| Key Aspect | Observation | Significance |
|---|---|---|
| PCE Data Alignment | Met market forecasts | No significant market surprise |
| Consumer Spending (Overall) | Continued increases in services, durable goods, and consumer goods | Reinforces prior trend |
| Consumer Spending (Specific Increases) | Vehicles, financial/welfare services, housing saw increases | Reversed previous month's decrease in vehicle spending |
| Consumer Spending (Specific Decreases) | Energy, gasoline, judicial services showed decreases | Identified specific areas of contraction |
| Sectors with Decreased Spending | Reduced from 4 sectors last month to 2 this month | Indicates broader spending growth overall |
| Inflation-Adjusted Consumer Expenditures | Increased by approximately 0.3% | Strengthened by income growth, primarily goods-driven |
| Core PCE (Monthly) | Increased by 0.3% | Key metric preferred by the Federal Reserve |
| Core PCE (Annualized) | Reached 2.8% | Highest level recorded since February |
| Inflation Concerns | Heightened due to rising prices for services and goods | Aggravated by the impact of Trump's tariffs |
| Consumer Spending Sustainability | Uncertain amidst rising prices and a weakening labor market | Crucial factor for future economic outlook |
| Market Reaction (Post-PCE) | Stock futures and bond markets improved, dollar remained strong | Offset recent losses, no change in Fed rate cut expectations |
| Fed's Monetary Policy Hint | Powell hinted at a probable rate cut at Jackson Hole | Weakening labor market cited as a main reason |
| Tariffs' Price Impact | Powell acknowledged clear but potentially transient impact | Awaiting confirmation in next CPI data |
| Upcoming Data for Fed | NFP, CPI, and PPI data due before the September meeting | Will provide a clearer view on inflation and the labor market |
