Softer inflation dims October hike odds
Personal income rose just 0.2%, while consumer spending — which accounts for more than two-thirds of US economic output — surged 0.9%, well above the 0.8% forecast and sharply higher than the downwardly revised 0.1% gain recorded in July.
Separately, the BEA released its final second-quarter gross domestic product estimate, revising growth sharply higher to an annualized 2.2%, up from the prior 1.5% reading, with stronger contributions from consumer and government spending as well as investment.
Real final sales to private domestic purchasers, a key gauge Fed officials use to assess underlying demand, rose 4.6%.
Lisa Cook of the Federal Reserve says AI-driven investment demand, rising energy costs and persistent inflation pressures could delay a return to the Fed’s 2% inflation target, reinforcing the possibility of an extended higher-rate environment.https://t.co/jTfMXg5r1F
— Mortgage Professional America Magazine (@MPAMagazineUS) September 29, 2026
What it means for the Fed and mortgage rates
The softer core print reduced the probability of an October hike, while a pause heading into fall had been the market’s working assumption.
But the report does not clear a path to rate cuts. Headline PCE at 3.4% and core at 3.0% both remain well above the Fed’s 2% target. The 0.9% consumer spending surge underscores that demand is not softening quickly enough to warrant policy relief.