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The Federal Reserve is unlikely to find much support for pausing interest rate increases in Wednesday’s inflation report. Economists expect persistent price pressure alongside consumers who continue to spend despite higher costs and weak sentiment readings.

The personal consumption expenditures price index, the Fed’s primary inflation gauge, is expected to rise 0.3% at both the all items and core levels, according to the Dow Jones consensus. The core measure excludes food and energy costs.

On an annual basis, all items inflation is expected at 3.7%, while core inflation is projected at 3.3%. Both readings would be unchanged from July and remain well above the central bank’s 2% target.

That outlook offers little evidence of an imminent retreat in inflation. Dan North, senior economist at Allianz Trade, said the core reading remains stubborn enough that policymakers cannot easily dismiss it.

“The Fed is going to look at this and say, ‘Hey, you know, the core is not moving, and I don’t have any expectations or anything to believe that it’s going to start going back down in any sort of convincing way,’” North said. “It’s still way above target ... So I think it’s really embedded in there to the extent that the Fed is not going to be able to ignore it or explain it away.”

Fed officials approved a quarter percentage point rate increase at their September meeting and projected the likelihood of another move by the end of the year. All but two of the 18 Federal Open Market Committee officials who submitted forecasts expected at least one more increase in 2026.

Fed Chairman Kevin Warsh said earlier this month that hiring data, business investment and private sector earnings indicate that the economy remains in good shape. “I would be hard pressed to describe broad financial conditions as restrictive,” Warsh said.

Fed Governor Michael Barr offered a similarly firm warning Tuesday, pointing to tariffs and the prolonged war with Iran. He said those forces meant “we have been knocked off course on our progress toward our 2% goal.”

Barr added, “I don’t yet see a clear trend toward a timely return to 2%.” He reiterated that further rate increases would probably be required, although he did not identify a specific level.

The September increase placed the central bank’s borrowing benchmark between 3.75% and 4%. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” Barr said.

New York Fed President John Williams identified the artificial intelligence buildout and related demand for goods as another source of persistent inflation. Still, he pointed to slower housing services inflation and said there was no evidence that the labor market was adding to inflationary pressure.

Williams also said tariff pressure on goods prices had largely faded. His policy language was more restrained than Barr’s, saying “there is no need for urgency, and we have time to gather more information,” while still expecting “one further upward adjustment” this year.

Wednesday’s report will also include revisions stemming from changes to Bureau of Economic Analysis methodology dating back to 2021. The adjustments affect measurements for legal services, software and computer accessories, and portfolio management services.

Various Wall Street estimates indicate that July’s annual PCE inflation readings could be revised lower by two or three tenths of a percentage point. That could bring the 12 month reading down to 3%, improving the view of prior inflation without necessarily changing the outlook.

Goldman Sachs expects the next couple of months to be “somewhat less favorable before a more benign trend reasserts itself.” Any easing would offer relief to consumers, but spending has remained resilient even as sentiment readings falter.

The consensus estimate calls for consumer spending to have increased 0.8% in August, partly reflecting another surge in gasoline prices. Spending rose only 0.2% in July.

Bank of America reported that debit and credit card spending increased 6.9% from a year earlier during the week ended Sept. 19. Gasoline spending jumped 26.5%, but spending excluding gasoline still climbed 5.7%.

Persistent inflation combined with continued consumer spending gives the Fed little obvious reason to conclude that September’s increase has done enough. Markets are pricing a strong probability of an October rate increase, followed by another move in either December or January.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.