Remember when we were all sweating bullets over inflation running hot for years? Yeah, me too. But this morning, something quietly remarkable happened: the September PCE numbers finally dropped, and they’re telling a very different story.
Core PCE – the Federal Reserve’s absolute favorite way to measure inflation – rose just 0.2% month-over-month and hit 2.8% year-over-year. That’s not just in line with estimates on the headline; it actually came in a tenth of a percentage point cooler than Wall Street expected. In a world where we’ve been trained to brace for upside surprises, that feels almost… pleasant?
Why This Delayed Report Actually Matters More Than Usual
Let’s be honest – most months, PCE day is a bit of a yawner compared to CPI. But September’s report had to wait weeks because of the government shutdown mess. That delay turned it into something bigger: the last major inflation print before the Fed’s December meeting.
And boy, did it deliver good news.
Think about where we were a year ago. Core PCE was still kissing 3.5%. Shelter costs were raging, services inflation felt sticky, and every data point came with a side of dread. Fast forward to now, and we’re basically knocking on the door of the Fed’s 2% target. In my view, that’s one of the more under-appreciated economic wins of the past decade.
Breaking Down the Numbers That Actually Move Markets
Here’s what jumped out at me when I dug into the release:
- Core PCE (ex food & energy): +0.2% m/m, +2.8% y/y – matches monthly estimate, beats annual by 0.1%
- Headline PCE: +0.3% m/m, +2.8% y/y – right on consensus
- Personal spending: up a solid 0.5% – people are still opening their wallets
- Personal income: +0.3% – a touch light, but savings rate ticked down only slightly
Perhaps the most interesting aspect? The super-core services measure (ex housing) continues to drift lower. That’s the one the Fed watches like hawks when they worry about wage-price spirals. Right now, it’s whispering “all clear.”
What the Fed Is Probably Thinking Right Now
Put yourself in Jerome Powell’s shoes for a second.
You’ve already cut rates once in September, the labor market is cooling but not collapsing, and now your preferred inflation gauge is basically saying “mission almost accomplished.” The risk of waiting too long and overshooting on the restrictive side starts looking bigger than the risk of cutting too soon.
The inflation fight isn’t fully won, but we’re clearly in the endgame. Today’s report removes one of the last remaining hurdles for a December cut.
– What many economists are saying (without actually saying it out loud yet)
Market pricing reflects that shift in real time. Before the print, traders saw about a 70% chance of a December cut. Post-report? We’re pushing 90% and climbing.
The Bond Market’s Immediate Reaction Tells You Everything
I always watch the 10-year Treasury yield on PCE day like it’s the season finale of my favorite show. This morning it dropped sharply – we’re talking 8-10 basis points in minutes – before settling around 4.22%. That’s the bond market collectively shrugging and saying, “Yeah, lower rates are coming.”
For context, mortgage rates tend to track the 10-year pretty closely. Anyone who’s been sitting on the sidelines waiting for affordability to improve just got another nudge that waiting might actually cost them.
The Bigger Picture: Are We Actually Pulling Off the Soft Landing?
Look, I’ve been around long enough to remember when “soft landing” was basically economist code for “unicorn.” Yet here we are:
- GDP still growing above trend
- Unemployment under 4.5% and rising only gradually
- Inflation collapsing toward target without a recession
- Corporate earnings holding up
It’s not perfect. Regional banks are still grumpy, commercial real estate has issues, and the consumer is finally starting to feel the lag effects of all those rate hikes. But man, it’s a hell of a lot better than the alternative we were pricing in back in 2022.
Sometimes I wonder if we’ll look back at 2023-2025 as the period when central banking briefly worked exactly as advertised. Stranger things have happened.
What This Means for Your Money (The Practical Stuff)
Let’s bring this home.
If you’re holding cash earning 4-5% in a money market or high-yield savings account, enjoy it while it lasts. Every tenth of a percent the Fed cuts tends to drag those yields lower within weeks.
If you’re thinking about refinancing or buying a home, the window between “rates are coming down” and “everyone else realizes rates are coming down” is usually pretty narrow. Food for thought.
Stock investors? Today was a “risk-on” green light. Growth stocks, small caps, anything rate-sensitive – they’re breathing easier. The Nasdaq was already up nicely; this just removes another weight.
One Chart That Sums It All Up
If I could show you only one image right now, it would be core PCE over the past three years plotted against the Fed funds rate. You’d see inflation peaking right as rates went vertical, then both trending down together in this beautifully symmetrical way. It’s almost too perfect – like the economy read the textbook and decided to follow instructions for once.
We’re not out of the woods completely. Geopolitical risks, election uncertainty, and the lagged effects of past tightening can still throw curveballs. But today? Today feels like the moment the tide officially turned.
So pour yourself another coffee, take a deep breath, and allow yourself a small smile. The great disinflation of 2024-2025 might actually stick the landing.
And if the Fed does deliver that December gift we’re all expecting? Well, 2026 could be a very interesting year indeed.
