Key Points
Today (Sept. 11) marks the release of the August inflation report by the U.S. Bureau of Labor Statistics.
Fed Chair Kevin Warsh and his Federal Open Market Committee (FOMC) colleagues have a preferred inflation gauge, and it’s not the Consumer Price Index (CPI).
The price stickiness of Personal Consumption Expenditures (PCE), coupled with entrenched Trumpflation, points to a greater likelihood of a rate hike on Sept. 16.
Today, Sept. 11, is a big day for Wall Street and its major stock indexes, the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC). In addition to remembering the tragic loss of life 25 years ago, it marks the release of the August inflation data by the Bureau of Labor Statistics.
Thanks in part to Trumpflation (inflation that's specifically driven by President Donald Trump's policies), the prevailing inflation rate has been running well above the Federal Reserve's long-term target of 2%. Headline inflation for May, as determined by the Consumer Price Index (CPI), surged to 4.2%, driven primarily by higher fuel prices.
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Fed Chair Kevin Warsh has promised to deliver price stability. Image source: Official Federal Reserve Photo.
In June and July, the CPI retraced to 3.5% and 3.4%, respectively, with the prospect of a U.S.-Iran peace deal weighing on crude oil prices. While some investors view this CPI retracement as evidence that Fed Chair Kevin Warsh and his Federal Open Market Committee (FOMC) colleagues can stand pat on interest rates, there's reason to believe Warsh and his peers have likely made up their mind about interest rates for the Sept. 16 FOMC meeting.
Wall Street and investors missed a big clue at Jackson Hole
The FOMC's policymakers are bound to uphold the dual mandate of maximum employment and price stability, the latter of which has been deemed the central bank's primary focus at the moment. The prevailing question is: What data to use when measuring price changes and determining if action is warranted?
While Warsh and his colleagues take the CPI and other economic data into consideration in their conduct of monetary policy, the Personal Consumption Expenditures (PCE) price index is the holy grail of inflation measures.
BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.
— The Kobeissi Letter (@KobeissiLetter) August 26, 2026
Core PCE inflation was 3.3%, the second highest reading since October 2024.
US inflation continues to run at nearly double the Fed's 2.0% target.
Own assets or be left…
When delivering his first annual Jackson Hole speech, Warsh proclaimed:
The Fed's price-stability objective of two percent, as measured by the Personal Consumption Expenditures price index, is a firm, fixed target.
The Fed chair just spilled the beans on the central bank's undisputed top inflation measure, which was released three weeks ago. While the CPI has been declining notably, largely due to lower fuel prices, the more encompassing PCE has been far stickier, with a trailing 12-month inflation rate of 3.7% in June and July.
The Fed's policymakers prefer the PCE over the CPI because it accounts for consumer substitution when certain goods or services become too pricey, and it factors in all spending on behalf of consumers, not just by consumers. The PCE is currently running a bit hotter than CPI, making it likelier than not that the FOMC acts in September.
Federal Reserve Chairman Kevin Warsh signaled the central bank may not be done fighting inflation, saying financing conditions didn't look restrictive to him and that better price readings recently hadn't convinced him the trend was improving.
— Nick Timiraos (@NickTimiraos) August 28, 2026
"I would be hard pressed to…
Furthermore, Warsh's Jackson Hole speech introduced a loose timeline for the central bank to gauge its progress in combatting above-average inflation. Said Warsh,
We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.
The addition of "at sufficient speed" signals that Warsh, and perhaps some other policymakers, are losing their patience with an inflation rate that's been above the Fed's 2% long-term target for 65 months (and counting).
More than likely, the Aug. 26 PCE data gave the FOMC's 12 voting members all the information they needed to make a decision on interest rates come Sept. 16. While persistently above-average inflation and evidence of entrenched Trumpflation don't guarantee the FOMC will hike rates next week, the bond market is giving Warsh and his peers every reason to act.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.