US PCE lower than expected, GDP beats expectations🗽Wall Street reacts

US data showed stronger-than-expected economic growth and consumption, while core PCE inflation came in below forecasts. The US dollar is weakening, while US equity indices are gaining following the release.

PCE inflation and ADP

• Headline PCE inflation rose by 3.4% y/y, below the 3.7% forecast and 3.7% previously.
• Headline PCE inflation increased by 0.3% m/m, in line with expectations and up from 0.2% previously.
• Core PCE inflation rose by 3.01% y/y, below the 3.3% forecast and 3.3% previously.
• Core PCE inflation increased by 0.2% m/m, compared with the 0.3% forecast and 0.2% previously.
• The final core PCE price measure came in at 3.3%, below the 3.6% forecast and 3.6% previously.
• The final PCE price measure came in at 5.0%, compared with 5.3% previously.
• US ADP employment increased by 90,000, versus 74,500 expected and 38,000 previously, with the prior reading revised to 36,000.

GDP and deflator

• Final US GDP growth came in at 2.2% q/q, above the 1.5% forecast and the previous estimate of 1.5%.
• The final GDP deflator came in at 6.1%, compared with 6.4% previously.

Income, spending and inventories

• Personal income increased by 0.2% m/m, below the 0.5% forecast and 0.4% previously.
• Consumer spending rose by 0.9% m/m, in line with expectations and up from 0.2% previously.
• Real personal consumption increased by 0.6% m/m, above the 0.5% forecast and following no growth in the previous month.
• Preliminary wholesale inventories rose by 0.7% m/m, compared with 0.5% expected and 1.3% previously.

What did the latest US data show us?

Real consumer spending, adjusted for changes in prices, rose by 0.6% m/m in August, marking the strongest monthly increase since March 2025. Consumers increased spending primarily on goods such as motor vehicles, home furnishings and clothing, despite high gasoline prices and rising costs across large parts of the economy. Demand is also being supported by a relatively stable labour market and rising stock prices, helping households maintain a strong propensity to spend.

At the same time, price pressures remain clearly visible. The Fed’s preferred PCE price index rose by 0.3% m/m, while core PCE, which excludes food and energy, increased by 0.2% m/m. This means the economy continues to expand despite elevated inflation, complicating the monetary policy outlook. The Fed is closely monitoring both spending and inflation data after raising interest rates in September for the first time in three years.

Attention will now turn to the September jobs report, due on Friday. In the coming weeks, investors will also receive further data on inflation and consumer conditions, providing a more complete picture of the economy ahead of the Fed’s 28 October policy decision. The current data therefore point to an economy that remains resilient despite higher interest rates and inflation, while leaving the Fed with limited room to ease policy quickly unless price pressures continue to moderate.

Source: xStation5

Source: XTB Research, Macrobond