Core inflation showed minimal movement in August, according to the Federal Reserve’s preferred measure, suggesting that the central bank remains on track to proceed with expected interest rate cuts later this year.

The latest data from the Commerce Department revealed that the personal consumption expenditures (PCE) price index, a key indicator of inflation, rose by 0.3% in August. This puts the annual inflation rate at 2.7%. When excluding food and energy costs—known for their volatility—the core PCE index climbed 0.2% during the month and was up 2.9% over the past year.

Compared to July, the overall inflation rate ticked up slightly from 2.6%, while the core rate held steady. All figures were consistent with projections from Dow Jones economists, indicating no major surprises in the data.

Household finances also showed strength. Personal income increased by 0.4% in August, while consumer spending rose by 0.6%. Both numbers came in slightly above expectations, suggesting that consumers remain confident and financially stable despite persistent inflationary pressures.

While the Federal Reserve officially targets a 2% inflation rate, officials are unlikely to alter their current policy direction. Recent comments from policymakers point toward two additional quarter-point interest rate reductions before the end of the year. The PCE index remains the Fed’s preferred inflation gauge because it provides a broader measure of consumer behavior compared to the consumer price index (CPI), factoring in shifts in spending patterns and substitution between goods.

Following the release of the report, stock futures extended their gains and Treasury yields dipped slightly, reflecting investor optimism that the inflation trend supports a more accommodative Fed stance.

The data also suggests that President Donald Trump’s tariff policies have had only a limited effect on consumer prices. Despite widespread concern that tariffs would sharply increase costs, companies appear to have mitigated much of the impact through inventory adjustments and internal cost management.

Breaking down the figures, prices for goods increased by 0.1%, services rose by 0.3%, food climbed by 0.5%, and energy goods and services jumped 0.8%. Housing-related expenses were also higher, with a 0.4% increase in August.

Consumer resilience continues to stand out. Spending has remained robust throughout the summer, even in the face of trade uncertainty. The personal savings rate rose to 4.6%, up from the previous month’s 4.4%, showing that households are maintaining a healthy balance between spending and saving.

“Consumers have truly excelled this summer, showing strong spending growth not only in August but in June and July as well,” said Chris Rupkey, chief economist at Fwdbonds. “After months of hesitation due to tariff concerns, people returned to stores and malls in full force.”

Federal Reserve Chair Jerome Powell and other officials have emphasized that tariff-related price increases are likely to be temporary rather than a sustained source of inflation. Nonetheless, some policymakers have cautioned that the room for additional rate cuts is limited given the current strength of consumer spending and the broader economy.

Financial markets overwhelmingly anticipate another rate cut in October, though expectations for a further reduction in December are more uncertain. The Fed’s most recent decision lowered the federal funds rate by 25 basis points to a range of 4.0% to 4.25%—its first cut of the year—signaling the central bank’s ongoing commitment to supporting growth while keeping inflation under control.