Wall Street Expects Higher Inflation Indicators Ahead of Fed Meeting
- Wall Street forecasts an acceleration in the Fed’s preferred inflation indicator following a significant producer price index jump.
- The core personal consumption expenditures inflation is projected to rise to 0.32% in September, up from 0.25% in August.
- Fed futures suggest a 29% chance of a rate hike this month, with a 91% probability of at least one hike by December.
Wall Street estimates predict an acceleration in the Federal Reserve’s preferred inflation indicator, following a recent spike in the producer price index (PPI). The PPI recorded a surprising increase of 1.3% on Thursday, marking the largest monthly gain since March 2022 and significantly exceeding the consensus estimate of 0.6%.
This surge has driven the year-over-year inflation rate to 6.3%, the highest increase since December 2022, mainly fueled by a 20% rise in gasoline prices. Moreover, prices excluding food, energy, and trade services still rose by 0.5%, indicating widespread inflationary pressures beyond just energy costs.
According to estimates from seven Wall Street analysts compiled by CNBC, core personal consumption expenditures (PCE) inflation for September is projected to rise to 0.32%, up from 0.25% in August. These estimates utilize data from the consumer price index (CPI), released Wednesday, alongside the PPI.
Kathy Bostjancic, chief economist at Nationwide, noted, “We see real risks the Fed will deliver another rate hike in two weeks’ time even as recent Fedspeak tempered expectations for back-to-back increases.”
In light of recent data, several Fed officials have expressed that there is no immediate need to rush into rate hikes while acknowledging that more increases are necessary. As such, current Fed futures indicate a 29% probability of a rate increase during the upcoming Fed meeting, but a significantly higher 91% chance of at least one hike by December.
A 0.32% increase in PCE would raise the year-over-year core inflation rate to 3.1%, increasing from 3.01% in August. Estimates from various banks range from a high of 0.35% from Barclays to a low of 0.29% from Oxford Economics.
Alex Pelle, senior U.S. economist at Mizuho Securities, highlighted the seriousness of the situation, stating, “The picture is not benign with inflation elevated and intensifying. On the economic data alone, there is little reason for the Fed to hesitate to continue moving the policy rate higher.”
Fed Chairman Kevin Warsh has indicated that a key criterion for avoiding future rate hikes is confidence that inflation will return to the Fed’s 2% target promptly. Both headline and core PCE inflation have remained above this target since 2021, steadily increasing since tariffs were implemented in April 2025 and significantly accelerating since the onset of the Iran war.
The Fed favors the PCE measure for inflation as it aligns more closely with actual consumer spending behaviors and adjusts its weightings accordingly when spending patterns shift.
News Courtesy of CNBC
