Federal Reserve's Initial September Inflation Forecast Shows Rising Core PCE Amid Declining Headline Inflation
The Federal Reserve’s latest inflation nowcast from the Cleveland Fed indicates that headline Consumer Price Index (CPI) is expected to ease further in August and September, following a three-year high of 4.2% in May driven by energy costs linked to geopolitical tensions involving Iran. However, core Personal Consumption Expenditures (PCE), which excludes volatile food and energy prices, are projected to rise again, reaching 3.49% for September — the highest level since early 2021. This divergence between headline inflation and core PCE suggests that inflationary pressures from Trump-era policies, often referred to as 'Trumpflation,' have moved beyond temporary energy shocks into broader economic sectors such as manufacturing and logistics. The persistent rise in core PCE indicates entrenched inflation despite the Fed’s repeated assurances of returning price stability. The market has generally reacted positively to lower headline CPI readings, but rising core measures may signal prolonged tightening from the Federal Reserve, which could dampen equity valuations and investor sentiment.
Topics: CPI Federal Reserve inflation stock market