Fed path shaped by firm inflation – Societe Generale

Societe Generale’s Jan Groen reviews August US inflation and growth data, highlighting that Core PCE came in softer than expected but underlying price pressures in services remain firm. Benchmark revisions lowered measured inflation but still show it above levels consistent with the Federal Reserve’s target. Stronger consumption and GDP revisions suggest the US economy entered 2H26 with more momentum, keeping an October rate hike possible.

Core PCE soft but Fed still wary

"August inflation: Core PCE undershot expectations, but the details were less reassuring. Softer core goods inflation masked a reacceleration in core services and super-core inflation, pointing to still-firm underlying price pressures."

"Revisions and underlying inflation: Benchmark revisions lowered the level of inflation and corrected earlier overstatements, but the broader story is unchanged: underlying inflation has drifted higher over the past year and remains above levels consistent with the Fed’s target."

"Consumption, income and GDP: Revisions painted a stronger growth backdrop, with firmer real consumption, wage income and GDP growth in 1H26 than previously estimated. August spending was particularly robust, underscoring resilient household demand."

"Assessment and October FOMC implications: Inflation revisions were modestly favorable, but growth revisions were more important. The economy entered 2H26 with stronger momentum than previously thought, while underlying inflation remains too elevated to provide the Fed with clear comfort. A pause in October remains possible, but an October hike remains on the table pending September CPI and PPI data."