September PCE Delayed Data Reveals Persistent Inflation, Fuels Rate Cut Bets

The September 2025 PCE inflation report arrived after a 43-day government shutdown, creating a data vacuum that complicated market assessments of price trends according to reports. When released, the report revealed core PCE inflation rose just 0.2% month-over-month-the weakest reading since mid-2024-though the annual core rate remained stubbornly elevated at 2.8% as data shows. This monthly moderation was partly overshadowed by a sharp 0.3% surge in headline PCE, driven by $63.0 billion in higher services spending (shelter and medical care) and $2.1 billion in goods according to the Bureau of Economic Analysis.

The services spending boom suggests persistent demand pressures in essential sectors like housing and healthcare, even as monthly core inflation cooled. While the 0.2% monthly core rise may temper expectations for aggressive Fed rate cuts, the unchanged 2.8% annual core figure keeps policymakers cautiously neutral. The delayed release also amplified challenges in interpreting inflation trajectories, as markets lacked timely data during the shutdown period.

Despite the monthly core easing, the services surge highlights how underlying price pressures could delay the Fed's policy pivot. Personal income and spending data in the report aligned near forecasts, but the services-driven inflation surge means any rate cut deliberations now weigh persistent sectoral pressures alongside the cooler monthly core reading.

Services Surge Masks Core Moderation

Services spending drove September's inflation acceleration, with Americans spending $63.0 billion more on services like shelter and medical care according to the Bureau of Economic Analysis. That dwarfs the $2.1 billion in goods that also contributed to the 0.3% monthly rise in consumer prices. The shift reflects a broader transition as pandemic-era goods inflation fades and service-sector pricing gains momentum. Shelter costs remain stubbornly high, while medical care expenses continue climbing according to business reports.

Yet monthly core inflation-excluding food and energy-only ticked up 0.2%, below July's 0.3% gain. Year-over-year core inflation held at 2.8%, matching forecasts. This moderation tempers expectations for aggressive rate cuts as the Fed weighs whether higher services prices are temporary or persistent. The delayed release due to a 43-day government shutdown adds uncertainty, though cooler core readings suggest inflation may be peaking.

While services inflation remains a near-term concern, the modest core increase indicates broader price pressures aren't spiraling. The Fed faces a delicate balancing act as policymakers weigh

AI-driven economic shifts against traditional growth-inflation dynamics.

Fed Policy Implications & Market Expectations

The Federal Reserve's next move hinges on inflation data released after a prolonged government shutdown. The critical September 2025 Personal Consumption Expenditures (PCE) index, the Fed's preferred gauge, showed a 2.8% annual rise, a slight uptick from August but still above the central bank's 2% target. This persistent inflation, with monthly growth holding steady at 0.3%, keeps the case for easier monetary policy alive. Market pricing now strongly favors a 25-basis-point rate cut in December, with the CME FedWatch tool indicating an 87.2% likelihood, reflecting investor expectations that policymakers need more evidence of progress before acting. Stocks responded positively to the delayed report, signaling optimism about potential monetary easing. According to Reuters

However, the core inflation reading proved slightly more favorable, rising only 0.2% monthly (2.8% annualized), below expectations and marking the lowest level since mid-2024. Services, shelter, and medical care costs were the primary drivers of this trend. This nuance reinforced the December cut probability but also hints at a potentially more measured approach. The market already prices in a second quarter-point reduction by June 2026, suggesting a longer path to rate normalization is anticipated. According to CNBC

Despite the near-term data supporting rate cuts, significant structural inflation risks linger. Ongoing tariffs and anticipated fiscal stimulus measures pose continuous upward pressure on prices, potentially complicating the Fed's path to its 2% goal. These factors mean the central bank will likely remain cautious, needing clearer confirmation that inflation is sustainably declining before committing to multiple cuts. This creates a scenario where policy flexibility is valued, but the endpoint for rates remains uncertain due to these underlying economic pressures. Investors should monitor both the inflation data flow and the potential impact of fiscal and trade policies closely.

Risks & Structural Uncertainties

Building on the latest inflation data, several headwinds merit close attention. The September 2025 PCE report was delayed for 43 days due to a government shutdown, creating substantial data gaps that complicate economic assessments and may mask underlying trends. According to business analysis When released, core PCE inflation rose just 0.2% monthly, below expectations, and at annualized levels consistent with forecasts. According to financial reporting This monthly moderation marks the lowest reading since mid-2024, offering tentative relief but not signaling a robust disinflation.

Persistent risks linger in services, shelter, and medical care sectors, where elevated costs continue to anchor inflationary pressures. Experts warn that AI-driven economic shifts could amplify these frictions, potentially sustaining cost pressures even as monthly data hints at easing. While the shutdown delay means some information is incomplete, the annualized rate staying near forecasts underscores that disinflation remains fragile. Investors should weigh this cautious outlook, as unresolved data gaps and sector-specific headwinds could delay the Fed's policy pivot.