The Fed's main inflation measure will be released Wednesday. Here's what to expect

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If anyone at the Federal Reserve is looking for evidence arguing against another interest rate hike, they're unlikely to get it in data due Wednesday that is expected to show ongoing price pressures and consumers who nevertheless continue to spend.
The personal consumption expenditures price index, the primary inflation gauge for central bank policymakers, is expected to show increases of 0.3% at both the all-items and core levels, the latter of which excludes food and energy costs, according to the Dow Jones consensus.
On an annual basis, the price levels are expected to show increases of 3.7% and 3.3%, respectively, unchanged from July and still well above the Fed's 2% target.
In other words, there's little indication that inflation is going to abate anytime soon.
"The Fed is going to look at this and say, 'Hey, you know, the core is not moving, and I don't have any expectations or anything to believe that it's going to start going back down in any sort of convincing way,'" said Dan North, senior economist at Allianz Trade. "It's still way above target ... So I think it's really embedded in there to the extent that the Fed is not going to be able to ignore it or explain it away."
Fed officials at their September meeting approved a quarter percentage point rate increase and penciled in the likelihood of another by the end of the year. All but two of the 18 Federal Open Market Committee officials who provided forecasts indicated they expect at least one more move in 2026 as they raised their consensus PCE inflation outlook.
Fed Chairman Kevin Warsh said at his news conference earlier this month that hiring data along with business investment and private sector earnings show the economy in good shape.
"I would be hard pressed to describe broad financial conditions as restrictive," Warsh said. Financial conditions are an important input for how the Fed calibrates rate policy.
Other officials weigh in
Similarly, Fed Governor Michael Barr said Tuesday that the combination of tariffs and the prolonged war with Iran has meant "we have been knocked off course on our progress toward our 2% goal."
Moreover, he added, "I don't yet see a clear trend toward a timely return to 2%."
Consequently, Barr reiterated his belief that the Fed likely will need to continue to raise rates, though he did not specify a level. The September move put the central bank's borrowing benchmark in a range of 3.75%-4%.
"In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," he said. "We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that."
New York Fed President John Williams noted a third contributor to persistent inflation: the artificial intelligence buildout and the associated demand for related goods.
"Fortunately, other indicators are more encouraging regarding the inflation outlook," he said. "Prices for housing services have decelerated, and there is no evidence that the labor market is adding to inflationary pressures."
Williams added that the pressure on goods prices from tariffs has largely abated.
From a policy perspective, he spoke in more dovish terms than Barr, saying "there is no need for urgency, and we have time to gather more information." However, he did say he expects "one further upward adjustment" of rates may be necessary this year.
Still spending despite inflation
Wednesday's release adds a wrinkle into the inflation permutations: lower readings in prior months due to revisions the Bureau of Economic Analysis will apply retroactively.
Specifically, the BEA is adjusting its methodology back to 2021 for how it measures prices for legal services, software and computer accessories and portfolio management services. The result is that PCE annual inflation readings for July are likely to be revised lower by two or three tenths of a percentage point, possibly taking the 12-month reading down to 3%, according to various Wall Street estimates.
That could improve the rearview mirror look without necessarily changing the road ahead as the outlook remains cloudy.
Goldman Sachs, for instance, expects that the next couple months of inflation data will be "somewhat less favorable before a more benign trend reasserts itself."
Any retreat will come as a relief to consumers who, despite faltering sentiment readings amid the persistent price increases, are continuing to spend.
The Street consensus is for consumer spending to have risen 0.8% in August — the product at least in part of another surge in gas prices. In July, the increase was just 0.2%.
Even with the jump in energy costs, Bank of America reported that spending has been strong.
Debt and credit card spending rose 6.9% from a year ago for the week ended Sept. 19. A good part of that bump was a 26.5% surge in gasoline. But even with gas excluded, spending rose 5.7%.
For the Fed, that combination of persistent inflation alongside consumers still willing and able to spend offers little obvious reason to conclude that September's rate hike has done enough. Markets are pricing in a strong probability of an October rate hike with one to follow in either December or January.

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