August 2025 PCE Inflation Update: Core Rate Holds Steady at 2.9%, Impacts on Fed Policy and Consumer Spending

Core PCE Inflation Rate Holds Steady at 2.9% in August 2025, Aligning with Market Expectations

In August 2025, the Federal Reserve tracked its main inflation sign—the Core Personal Consumption Expenditures Price Index—and kept it at an annual rise of 2.9%. Economists saw this result. The core PCE, which leaves out wild swings in food and energy prices, grew 0.2% in the month. This data shows slow and steady inflation.

Key Inflation Figures and Economic Indicators

Core PCE Price Index: +0.2% month-over-month; +2.9% year-over-year
Headline PCE Inflation Rate: +0.3% month-over-month; +2.7% year-over-year
Personal Income: Up 0.4% in August
Personal Consumption Expenditures (Spending): Up 0.6%

All these numbers match the Dow Jones consensus forecast. This match gives clear ground for policy steps.

Implications for Federal Reserve Policy

The Federal Reserve has a 2% inflation target. The steady core inflation has not made the Fed change its plan much. After the FOMC cut the federal funds rate by a quarter point, the target range stands at 4%-4.25%. Fed members expect two more rate cuts by the end of 2025. Stock futures rose and Treasury yields fell after the report. The market shows trust in a slow easing cycle as inflation stays steady.

Consumer Spending Resilience Amid Tariff Concerns

The report shows how consumers act while tariffs from President Donald Trump play a role. Forecasts had predicted more inflation, but tariffs did not push up consumer prices much. Firms worked with pre-tariff stock and took cost hikes inside. Spending stayed strong because rising income and a rise in the personal saving rate to 4.6% (up 0.2 percentage points) helped. Prices for goods (+0.1%), services (+0.3%), food (+0.5%), energy (+0.8%), and housing (+0.4%) all moved upward.

Economist Chris Rupkey of Fwdbonds said, “Consumers hit it out of the park with strong gains in spending in August, and they showed a similar trend in June and July. Summer was when consumers returned to active spending after backing away from shops and malls when uncertainty and fear set in after the White House tariff events in April and May.”

Fed’s Outlook on Tariff Effects and Inflation

Fed Chair Jerome Powell and team say tariffs will cause a one-time price push without a lasting rise in core inflation. Some Fed members, however, still worry about the room to ease money policy further. Even if markets bet on another rate cut in October, support for cuts later in the year is less strong.

Summary:
The August 2025 inflation report shows core inflation near 3% and spending and income just above forecasts. Tariff issues do not push prices higher, and strong consumer behavior backs the Fed’s slow rate cut plan. Investors and policymakers now look to new economic data to see where inflation and policy head next.

For more detailed analysis and updates on inflation, Federal Reserve policy, and market trends, stay tuned to CNBC.

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