Preview: U.S. August PCE to be released at 20:30 tonight, unlikely to serve as basis for Fed to pause interest rate hikes

The U.S. August Personal Consumption Expenditures (PCE) price index will be released at 20:30 tonight. Markets expect August PCE inflation to remain elevated, with the data unlikely to provide sufficient grounds for the Federal Reserve (Fed) to pause further policy tightening. Headline PCE is forecast to rise 0.4% month-on-month and 3.7% year-on-year, both roughly unchanged from July; core PCE, which excludes food and energy, is projected to climb 0.3% month-on-month and 3.3% year-on-year, still above the Fed’s 2% inflation target. A rebound in energy prices and resilient consumer spending may complicate the Fed’s policy judgment. If the data meets expectations, markets will likely continue to focus on whether the Fed will raise interest rates again this year. At its September meeting, the Fed lifted its policy rate by 25 basis points to 3.75%-4.00%, and its latest projections signaled there is still room for further adjustments before the end of the year. There are internal divisions within the Fed over its future policy path. Fed Governor Michael Barr believes that tariffs and the Iran conflict have pushed inflation off track toward the 2% target, and further rate hikes may still be needed; New York Fed President John Williams, by contrast, said there is no need for urgent action, but expects one more rate hike could be delivered this year. If PCE comes in higher than expected, market pricing for additional rate hikes may strengthen.