United States inflation moved within striking distance of the Federal Reserve's long-standing 2% objective in August, as data released by the Bureau of Economic Analysis showed the Personal Consumption Expenditures (PCE) price index rose 2.2% on an annual basis—down from 2.5% in July and marking the lowest headline reading since February 2021.
On a monthly basis, the headline PCE index edged up just 0.1%, supported by declining gasoline and energy goods prices as well as durable goods deflation. Core PCE—which strips out volatile food and energy components and serves as the central bank's primary gauge of underlying price trends—also increased by a modest 0.1% month-over-month, below economists' forecasts of 0.2%, while holding at 2.7% year-over-year.
Preferred Federal Reserve Gauge Nears Two Percent Benchmark
The Commerce Department report simultaneously pointed to a gradual moderation in household outlays and income growth. Personal income increased 0.2% in August, while personal consumption expenditures rose 0.2% after a robust 0.5% expansion in July, signaling that American households are maintaining steady spending discipline without tipping into contraction.
Adding to the constructive macroeconomic backdrop, the University of Michigan's final September reading of the Consumer Sentiment Index climbed to 70.1 from 67.9 in August, reaching its highest level since April. Survey respondents across income groups cited easing day-to-day price pressures and expectations for lower mortgage and auto loan rates following the Federal Reserve's recent 50-basis-point rate cut.
“Consumer sentiment rose for the second consecutive month to its highest reading since April, supported by receding inflation expectations and growing optimism over lower borrowing costs.”
Household Confidence Rebounds on Easing Borrowing Costs
Year-ahead inflation expectations among surveyed households edged down to 2.7% in September—the fourth consecutive monthly decline and the lowest reading since December 2020. That figure now sits comfortably within the 2.3% to 3.0% range recorded during the two years preceding the pandemic.
Financial markets reacted positively to the paired releases, with Treasury yields stabilizing and futures markets pricing in additional policy easing at the Federal Open Market Committee's November and December meetings. With disinflation firmly entrenched, central bank policymakers have increasingly shifted their focus toward preserving full employment.
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