August 26, 2026
Two key inflation gauges came in slightly hotter than expected, reinforcing the case that the Federal Reserve will keep rates higher for longer.
What happened
The USA GDP Price Index for the second quarter rose to 6.4%, one tick above the 6.3% estimate. Separately, the headline Personal Consumption Expenditures (PCE) Price Index for July climbed 3.7% year over year, also hotter than the 3.6% estimate.
Why it matters
The PCE index is the Fed's preferred measure of inflation. A sustained reading above target makes it harder for the central bank to justify cutting interest rates. Higher rates for longer hurt the present value of future corporate earnings, particularly for growth stocks that borrow heavily.
The case against
The overshoot was a single decimal point on annual numbers, within the margin of error. Markets barely moved, with the Dow holding steady, suggesting traders see this as noise rather than a new acceleration. The core PCE reading, which strips out volatile food and energy, may tell a softer story.
What settles it
The monthly change in core PCE, which isolates the underlying trend from year-ago base effects.