The Federal Reserve's preferred inflation indicator is set to be revised! Analysts: It may provide room for Walsh to stay put.

The annual revision of the Fed's preferred inflation gauge is about to begin. Preliminary calculations by economists suggest the adjustment could lower core inflation data, adding a key weight to the balance of whether to raise interest rates this year.

On July 9, according to Bloomberg, the U.S. Bureau of Economic Analysis (BEA) plans to conduct the annual update of the Personal Consumption Expenditures (PCE) price index in September. Several economists have run calculations on the revision, arguing that if the relevant adjustments had already been applied to the latest data, core PCE readings could fall by about 0.1 to 0.3 percentage points. Although the magnitude is limited, against the backdrop of Fed officials being almost evenly split on whether to raise rates in 2026, this downward revision might be just enough to help new Fed Chair Warsh and dovish officials hold their ground for a pause in rate hikes.

Wolfe Research Chief Economist Stephanie Roth noted that the rationale for the Fed to keep rates unchanged has been significantly strengthened. She believes that in addition to the PCE revision plan, the recent pullback in oil prices and the possibility that labor market momentum reflected in the latest employment report has been overestimated provide further support for staying put.

PCE Annual Revision Nears, Market Bets on Rates Holding Steady

The U.S. Bureau of Economic Analysis (BEA) plans to release the annual revision data for the PCE price index this September. Current data shows that the PCE rose 4.1% year-over-year in May, the highest since April 2023, still well above the Fed's 2% inflation target; the core PCE, excluding food and energy, rose 3.4% year-over-year, a key inflation benchmark for policymakers.

Although the annual revision is not expected to fundamentally change the overall inflation picture, given the growing divergence within the Fed at present, even a marginal downward revision could have a tangible impact on policy orientation. According to Bloomberg, Fed officials largely agreed at the June meeting that inflation prospects face upside risks, but were clearly divided on whether another rate hike would be needed in 2026.

This subtle internal divide makes the timing of the September revision particularly crucial. If the data indeed results in a downward revision to core inflation readings, it will provide additional arguments for Warsh and dovish officials, strengthening their stance to keep rates unchanged and thus fend off pressure for rate hikes in internal debates.

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