PCE Inflation Hits 3.6% in September as Fed Weighs December Rate Hike

Q: If inflation is still above target and GDP beat forecasts, how long will the Fed keep rates high?

The Fed is likely to keep rates elevated well into 2027, with any cuts coming slowly unless inflation cools more decisively or growth weakens. The latest data strengthen the case for a longer hold. September PCE inflation rose 3.6% year over year and core PCE 3.1%, both still above the Fed’s 2% target, while third-quarter GDP grew at a stronger-than-expected 3.4% annualized pace. Consumer spending also remained firm. That combination tells policymakers that demand is still resilient and that inflation pressure has not fully broken. The Fed’s own September projections point to a prolonged restrictive stance rather than quick easing. Officials projected headline PCE inflation at 3.7% for 2026 and only reaching 2.3% in 2027, with the median federal funds rate seen at 4.1% at the end of 2026, 3.9% in 2027, 3.6% in 2028 and 3.2% in 2029. That path implies rates staying relatively high even as inflation gradually declines. Markets and economists broadly read recent Fed communications the same way: officials are in wait-and-see mode near term, but not ready to declare victory on inflation. Some underlying measures, such as trimmed-mean PCE, suggest inflation may be cooler than headline readings imply, which could reduce pressure for immediate further hikes. But as long as growth stays solid and inflation remains above target, the stronger likelihood is an extended pause at high levels, with only gradual easing starting in 2027 rather than a quick pivot.

3 articles · Updated · The New York Times · Oct 29

U.S. consumer prices rose 0.5% in September from August, pushing annual PCE inflation to 3.6% and reinforcing expectations that the Fed could raise rates in December.
Core PCE climbed 3.1% from a year earlier and 0.3% on the month, showing underlying price pressures stayed firm even after the Fed left rates unchanged this week.
Wednesday's 10-2 Fed decision to hold rates steady included two votes for an immediate hike, signaling growing concern inside the central bank about inflation still running well above its 2% target.
Oil-driven price pressure remains a key factor: the war with Iran and disrupted Strait of Hormuz energy flows have lifted energy costs across the U.S. economy.
Personal income rose just 0.2% in September, down from 0.3% in August, suggesting households are facing faster price gains even as income growth cools.