U.S. September PCE Inflation Hits 2.8% Exactly as Forecasted – First Core Decline Since Spring

2025-12-08 05:14:19

The U.S. Bureau of Economic Analysis released September 2025 Personal Consumption Expenditures (PCE) data on October 31, showing headline inflation rose 0.3% month-over-month and 2.8% year-over-year — matching consensus estimates to the decimal. Core PCE (excluding food and energy), the Federal Reserve’s preferred gauge, increased 0.2% MoM and 2.8% YoY, marking the first annual deceleration since April 2025 and keeping the disinflation trend intact.

Key Takeaways from the September PCE Report

Metric	September 2025	Consensus Forecast	Previous Month
Headline PCE (MoM)	+0.3%	+0.3%	+0.4%
Headline PCE (YoY)	+2.8%	+2.8%	+2.9%
Core PCE (MoM)	+0.2%	+0.2%	+0.3%
Core PCE (YoY)	+2.8%	+2.8%	+2.9%

Real consumer spending (inflation-adjusted) rose a modest 0.1% MoM after a downwardly revised 0.0% in August, reflecting cautious household behavior amid still-elevated borrowing costs.

Market Reaction

S&P 500 climbed 0.5% in early trading and briefly touched a new all-time high.
10-year Treasury yields dipped 3 bps to 4.37% as markets priced in higher odds of a December Fed rate cut.
Fed funds futures now imply an 88% probability of a 25 bps cut at the December 17–18 meeting (up from 72% pre-report).

What It Means for Monetary Policy

The report keeps the Federal Reserve comfortably on track toward its 2% inflation target without signs of reacceleration. Chair Jerome Powell has repeatedly emphasized that core PCE trending below 2.8–2.9% would justify continued easing, and September’s first YoY slowdown since spring checks that box.

Most Wall Street economists (Goldman Sachs, JPMorgan, Bank of America) maintained forecasts for:

25 bps cut in December 2025
Another 25 bps in March 2026
Terminal rate settling around 3.75–4.00% by mid-2026

Bottom Line

September PCE delivered the “Goldilocks” outcome markets wanted: inflation cooling exactly as expected, no surprises, and real spending holding steady. Risk assets rallied, rate-cut odds rose, and the soft-landing narrative remains firmly intact heading into year-end.

For investors, the data removes near-term uncertainty and reinforces the current bullish bias across equities, Bitcoin, and other growth-sensitive assets.

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