U.S. PCE Set to Take Center Stage Friday — And It’s Not Just About Tariffs

TradingKey - The U.S. July Personal Consumption Expenditures (PCE) Price Index will be released on Friday, August 29. With Federal Reserve Chair Jerome Powell acknowledging that September could mark a policy turning point, economists expect this PCE report will not derail a September rate cut, but service-sector inflation and the ongoing pass-through of tariff effects could shape the pace of cuts in the coming months.

Economists broadly forecast:

• PCE MoM: +0.3%
• PCE YoY: 2.9%, the highest since February 2025, marking the third consecutive month of acceleration

Some economists project the year-over-year rate could reach 3%, the highest since March 2024.

After Powell’s unexpectedly dovish remarks at the Jackson Hole symposium, markets have almost fully priced in a 25-basis-point cut in September. However, the outlook for rate cuts beyond that remains unclear — as the full impact of tariffs has yet to fully materialize.

Bill Adams, Chief Economist at Comerica Bank, said:

“Inflation has picked up since the spring as tariffs have gradually flowed from the port to the warehouse to the checkout aisle.”

On Thursday, Fed Governor Christopher Waller said he supports a 25-basis-point rate cut at the September meeting and expects a “series” of cuts over the next three to six months. Waller had already called for rate cuts at the July meeting, but he does not expect a 50-bp cut in September.

In Waller’s view, underlying inflation is close to the Fed’s 2% long-term target, long-term inflation expectations remain stable, and the risk of labor market deterioration is increasing — all reasons the FOMC should cut rates. 

He reiterated that tariff-driven inflation will be temporary, and the Fed should not keep rates above neutral levels.

Beyond tariff-driven goods inflation, Wall Street is growing concerned about price pressures spreading into the service sector.

Adams noted that last month’s PPI report showed hot inflation in core services excluding energy and housing, suggesting that 2025’s inflation story is about more than just tariffs.

However, some analysts argue that with rising prices and a weakening labor market, consumers may become more selective, which could restrain broader price increases.