Fed officials should be able to focus on the wavering labor market and cut interest rates by another quarter percentage point at their final meeting of the year next week, thanks to relatively stable inflation data.
The Fed’s preferred inflation gauge slowed down on an annual basis for the first time since April, BEA data for September showed. Core PCE inflation, which excludes food and energy, ran at a 2.8% annual pace in September, a deceleration from August’s 2.9% rate. Monthly core inflation came in at 0.2%, in line with August’s numbers.
While the report had markets breathing a sigh of relief, it showed that prices are still increasing well above the Fed’s 2% goal, and that inflation remains stubbornly elevated. While another rate cut next week is the most likely outcome, there will likely be contentious debate and dissents from policymakers, especially considering Friday’s data are three months old. The trajectory for interest rates in 2026 also remains cloudy.