US September PCE Inflation Accelerates to 3.6%, Lifting Odds of December Fed Hike Above 80%

U.S. inflation accelerated in September, with the personal consumption expenditures price index rising 3.6% year over year, strengthening market expectations that the Federal Reserve will raise interest rates at its December meeting. The core PCE gauge, excluding food and energy, climbed to 3.1% annually, matching consensus estimates. The Commerce Department's Bureau of Economic Analysis reported Thursday that PCE prices rose 0.5% month over month, above August's 0.3% and in line with forecasts. Higher gasoline and other goods prices were key contributors. The supercore services measure, excluding housing, reached its highest annual rate since December 2024, signaling persistent services inflation. On Wednesday the Fed held its benchmark rate at 3.75%–4.00%, acknowledging inflation "remains elevated." CME's FedWatch tool puts the probability of a December hike at roughly 83.3%. Nominal consumer spending rose 0.5% in September, below the 0.6% estimate and slower than August's 0.9%, while real spending was flat. Personal income rose just 0.2%, pushing the savings rate to its lowest since October 2022. Third-quarter GDP grew at a 3.4% annualized rate.