US PCE Inflation in Focus as Markets Look Ahead to Jackson Hole
The US Dollar is trading near a three-month low as markets prepare for two closely linked tests of the Federal Reserve outlook: July’s inflation data and Fed Chair Kevin Warsh’s address at Jackson Hole later this week.
The Dollar Index was trading around 98.98 on Wednesday morning as investors awaited the latest Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure. The release will provide an important update on whether US price pressures are continuing to ease, and whether the Fed has enough evidence to maintain its current policy stance.
Economists expect core PCE inflation, which excludes food and energy, to remain at 3.3% year on year in July. That would leave underlying inflation well above the Fed’s 2% target and make today’s report particularly important ahead of the central bank’s next policy meeting.
PCE is closely watched because it captures a broader range of household spending than the Consumer Price Index and adjusts more readily to changes in consumer behaviour. For policymakers, core PCE is an important gauge of underlying inflationary pressure.
Recent data has offered some evidence that inflation is easing, although the broader picture remains complicated. Headline PCE inflation slowed to 3.7% in June from 4.1% in May, while core inflation stood at 3.3%. More recently, lower energy prices have helped ease some near-term inflation concerns, but tariffs and other cost pressures continue to complicate the outlook.
That leaves the Fed facing a delicate policy decision. A softer-than-expected PCE reading could reinforce evidence that inflation is moving back towards target and reduce pressure for further tightening. A stronger print, however, could strengthen the argument that interest rates may need to remain restrictive for longer, or potentially rise again.
That debate is already becoming more visible within the Fed. Boston Fed President Susan Collins said this week that tighter policy may be required if sustained progress on inflation does not materialise. The Fed has kept its target rate at 3.50%-3.75% since December, but persistent above-target inflation has kept the possibility of further tightening in focus.
US Dollar Trades Near Three-Month Low Ahead of PCE Inflation
Source: TradingView. Past performance is not a reliable indicator of future performance. Data as of 26 August 2026.
The Dollar Index’s position near the lower end of its recent range leaves the currency particularly sensitive to any surprise in today’s data. A softer PCE reading could weigh further on the dollar if investors move towards expectations of a less restrictive Fed, while an upside surprise could support both the dollar and Treasury yields as rate expectations adjust.
But PCE is only the first half of this week’s monetary policy story.
Attention will turn to Jackson Hole on Friday, when Warsh delivers his first keynote address at the symposium as Fed Chair. Markets will be watching closely for clues on how the Fed is weighing persistent inflation against the wider economic outlook, and, what would be required to shift policy from here.
PCE will provide the latest signal on inflation, before attention shifts to Jackson Hole and what Warsh’s comments could mean for the Fed’s policy outlook.