Core PCE YoY - September 2026
I think there is a modest chance that September core PCE comes in at 2.7% or lower, but the bar is still fairly high because the YoY measure is starting from 3.0% and needs another clean step down. The market looks a bit too pessimistic, though not dramatically so.
Analysis
The latest core PCE reading available is 3.0%, which means the market is asking whether the next report can deliver a meaningful drop of three-tenths or more in the year-over-year measure. That is possible, but it is not the base case. The most recent monthly core PCE increase was 0.2%, softer than expected, and the recent sequence of readings suggests inflation momentum has cooled enough that another modest step down is plausible. Still, the annual figure is sticky because one month does not move the 12-month average very much unless the new print is unusually weak or last year’s comparison month falls out of the calculation in a favorable way.
The strongest argument for a Yes outcome is that underlying inflation momentum has improved enough to make the year-over-year measure vulnerable to a further decline. A 0.2% monthly core PCE print is not disinflationary enough by itself to guarantee 2.7% or below, but it does support the idea that the three-month and six-month trends are running cooler than the year-over-year headline. If that moderation continues, the September annual number could slip from 3.0% to 2.8% or even 2.7%, especially if the prior-year base effect is helpful. This is the main reason the market should not treat 2.7% as impossible.
The strongest argument against Yes is that the year-over-year series has shown persistence at 3.0%, and the Fed’s own projections still point to inflation remaining above this threshold in the near term. That suggests that a move all the way to 2.7% requires not just slightly softer monthly data, but a combination of continued low prints and enough favorable base effects to overcome residual stickiness in services inflation. In other words, the recent trend is encouraging, but the latest evidence does not yet show enough acceleration in disinflation to make 2.7% the most likely outcome. The current market price also reflects this, implying traders see the sub-2.7% result as a tail outcome rather than a central case.
On balance, I think the market is still right to lean No, but the chance of Yes is somewhat higher than the current price implies because the recent monthly path is improving and the three-month trend appears softer than the annual figure suggests. My estimate is that the odds of 2.7% or less are around the mid-teens, with most of the probability mass centered on a result just above the threshold, such as 2.8% or 2.9%.
Arguments
For
- Arguments for Yes: The latest monthly core PCE print was softer than expected, which improves the odds of another step down in the annual rate.
- Arguments for Yes: Recent trend measures have looked cooler than the 12-month figure, suggesting the underlying inflation impulse is weakening.
Against
- Arguments against Yes: Core PCE has been holding at 3.0%, so a drop to 2.7% or less requires more improvement than the recent data have clearly shown.
- Arguments against Yes: Sticky services inflation and cautious Fed projections both point to inflation staying above the threshold.
Key drivers
- Recent monthly core PCE gains have softened enough to keep downward pressure on the year-over-year rate.
- Base effects from last year could help push the annual figure lower if the September 2025 comparison is favorable.
- Services inflation remains sticky, which makes a drop all the way to 2.7% harder than a move to 2.8% or 2.9%.
- The market is already pricing a very low chance of Yes, so any further cooling in the monthly data could reprice the event upward.
Risk factors
- A monthly print closer to 0.3% would likely keep the year-over-year rate above 2.7%.
- The YoY measure may not fall enough if the previous-year comparison does not provide a strong enough base effect.
- Inflation in core services could remain sticky even as goods prices moderate.
- The latest official data still showed 3.0%, so the series has not yet broken clearly below the threshold.
Scenarios
Best case
Core PCE comes in at 2.7% or even 2.6% because the monthly increase is weak and the base effects are favorable, confirming a clearer disinflation trend.
Most likely
The September reading lands just above the cutoff, most likely 2.8% or 2.9%, reflecting gradual disinflation but not enough to clear the 2.7% bar.
Worst case
The report prints 2.8% to 3.0% because monthly inflation stays around 0.2% to 0.3% and the year-over-year measure barely moves.
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