Fed's Key Inflation Gauge Expected to Hold Near 3.3% as Rate Hike Odds Grow

The Federal Reserve's preferred inflation gauge is expected to show price pressures barely budged last month, according to a Dow Jones consensus forecast ahead of Wednesday's release of the personal consumption expenditures price index.

Economists project the all-items PCE index rose 0.3% in September, with core prices—which exclude volatile food and energy costs—also up 0.3%. On an annual basis, prices are expected to climb 3.7% and 3.3%, respectively, unchanged from July and still well above the Fed's 2% target.

The report lands as Fed officials weigh whether to raise interest rates again before year's end. At their September meeting, policymakers approved a quarter-point increase and signaled one more hike was likely. All but two of the 18 Federal Open Market Committee members who submitted forecasts indicated they expect at least one additional move in 2026.

"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."

The persistence of core inflation matters because it strips out categories the Fed can't control, like gas prices and grocery costs. When that measure stays flat month after month, it suggests price increases are baked into the broader economy—rents, services, wages—and won't fade on their own.

Consumers, meanwhile, keep spending despite the pressure. That combination of steady demand and sticky prices gives Fed officials little cover to pause their tightening campaign.

Fed Chairman Kevin Warsh said at his news conference earlier this month that hiring data, business investment and private sector earnings all point to an economy that can withstand higher borrowing costs.

Wednesday's report is unlikely to change that view. If the numbers come in as forecast, they will reinforce the case for another rate increase—and leave little room for officials hoping to argue the inflation fight is nearly won.

Markets will watch the release closely for any deviation from expectations. A hotter-than-expected reading could push bond yields higher and weigh on stocks, while a cooler print might offer temporary relief.