Wall Street economists expect the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) index, to rise again in September, signaling persistent inflation pressures. This outlook follows a hotter-than-anticipated producer price index (PPI) report released last Thursday, showing a 1.3% monthly gain—the largest since March 2022—and pushing the annual increase to 6.3%. The surge was driven largely by a 20% rise in gasoline prices but also reflected broader inflation beyond food, energy, and trade services as core prices climbed 0.5%.

Economists forecast core PCE inflation, which excludes volatile food and energy prices, to increase by 0.32% in September, up from 0.25% in August, potentially lifting the year-over-year rate to 3.1%. This makes a near-term interest rate hike more likely despite recent comments from Fed officials suggesting a cautious approach. Kathy Bostjancic, chief economist at Nationwide, highlighted the real possibility of another rate increase at the upcoming November meeting, given the sustained inflation signals from recent economic data.

Federal Reserve officials, while hinting that more rate hikes are needed, have downplayed the urgency of back-to-back increases, which is reflected in market pricing that currently attributes only a 29% chance of a November hike but a 91% chance by December. Mizuho Securities economist Alex Pelle emphasized that the ongoing strength in inflation leaves little rationale for the Fed to pause in its policy tightening, considering how PCE inflation has remained above target since 2021, particularly after tariffs introduced in April 2025 and tensions arising from the Iran conflict.

Chairman Kevin Warsh has stressed that the Fed’s decision to hike rates hinges on confidence that inflation will trend back toward the 2% goal in a timely manner. However, with both headline and core PCE inflation continuing to surpass that target and showing signs of acceleration, the central bank faces mounting pressure to continue tightening monetary policy to rein in inflation and stabilize prices in the face of evolving geopolitical and economic developments.