US PCE Inflation Data: The Fed’s Key Inflation Gauge

Last week had a lot of important releases for financial markets, with economic indicators intersecting with hot AI news and the US’ latest credit rating changes.

US PCE Inflation Data and Global Trade Signals Shape Market Outlook

The US economy led the news last week, particularly on the interest rate front, with Jerome Powell’s Jackson Hole speech igniting market optimism for a rate cut at this September meeting. However, to confirm an interest rate cut next month, we still need the support of more economic data to be released this week, particularly the Personal Consumption Expenditures (PCE) price index.

Balance is returning to the market with the US reestablishing its trade treaties, especially with the US-Europe treaty seeing the light, as well as Canada showing positive initiatives towards the States.

As for China, despite a relatively positive year-on-year growth, US tariffs still loom over lively sectors such as manufacturing and retail. Beijing is working on stimulating local spending and investing, as well as internal domestic reforms and new legislation, to tackle possible economic slowdown. Keeping that in mind, the global economy faces a delicate period that requires close monitoring and quick political and economic action.

Key takeaways:

●    Markets are awaiting US PCE inflation data, the Fed’s preferred inflation gauge.
●    A revised reading of expected US economic growth for Q2.
●    NVIDIA’s Q2 2026 earnings release. 
●    Major inflation data release in Japan.

Financial markets: US PCE Inflation data in focus

First, The US economy

Last week was highly volatile, bringing back memories of last April, when an AI-related report released by MIT brought stock indices down from their AI-driven record highs.

The US market has also witnessed many central data releases and events, most importantly the minutes of the Federal Reserve’s July meeting and the Fed Chair’s speech at Jackson Hole.

Powell’s speech had the biggest effect, especially coinciding with the ongoing tensions between US President Donald Trump and Fed Chair Jerome Powell. Where the latter pointed out in his speech last Friday that he’s open to cutting interest rates in the next Fed meeting due to a weakening labor market while emphasizing that inflation remains a threat under current tariff policies, which could easily push prices up again.

Powell’s speech was not as straightforward as his last year’s; nonetheless, markets reacted positively to the notion of a rate cut on September 17.

That was not the only driver of investors' and analysts'' optimism. Last week had two major pieces of tariff news shaking the markets. The United States and the EU announced positive details of a trade deal that included lowering tariffs on cars to 15% from 27.5%, alongside positive arrangements in broader trade cooperation.

Progress was also seen on the Canadian front, with Prime Minister Mark Carney stating that they would remove many retaliatory tariffs on US goods and intensify talks with the US on a new trade and security partnership.

Positive trade news spread east to India, with the Indian Prime Minister stating that trade negotiations with the United States are still ongoing prior to August 27, the set date for implementing a 25% tariff on the Asian giant, which signals a possible economic deal on the horizon.

US President Donald Trump also released statements regarding TikTok and selling its stocks in the United States, signaling his willingness to delay the deal. He also mentioned that he will be discussing the deal with Chinese President Xi Jinping, and a list of potential buyers was mentioned without naming specifics.

Last week, S&P Global reaffirmed its rating of the US credit at “AA+,” stating that it expects the returns from tariffs imposed by Donald Trump to cover for the country’s latest tax cuts and spending legislation.

Fitch also reaffirmed the US credit rating at “AA+,” shedding light on its concerns for the high American debt compared to the country’s GDP, expecting the debt to rise from last year’s 114.5% to 127% by the end of 2027.

However, it noted that US tariff revenue could reach $250 billion this year, up from $77 billion last year, aligning with Congressional Budget Office estimates that Trump’s tariffs could reduce the US budget deficit by $4 trillion next year.

As for lingering concerns, the US-India trade deal remains unfinished, with Trump imposing tariffs as high as 50% on all Indian goods. Which in turn pushed India into tightening its trade alliances with China and Russia, trying to compensate for lost revenue in the US market.

The US market is to face a critical week with the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE), on the agenda. AlongsideQ2’s Gross Domestic Product (GDP) and the Consumer Confidence Index—all likely to impact financial markets.

Earnings of the world’s biggest company

Other than key US economic data releases, investors will be watching NVIDIA’s 2026 Q2 earnings report that will be released this week.

The report will be out after trading hours on Wednesday, August 27, 2025, with revenue expectations of 45.8 billion dollars (up 52.4% YoY), reflecting slower growth than previous quarters due to US tariffs and restrictions on H2O chip exports to China.

Investors will also be watching for the company’s advanced chip certainty, as they previously announced the Rubin architecture for 2026, followed by Rubin Ultra in 2027, underscoring their commitment to maintaining a competitive edge.

Second, the EU economy

The US-EU trade deal was the union’s biggest news for the week, with tariffs reaching 15% on all European goods, alongside the effect of the 10% tariffs already imposed, while tariffs on cars were reduced from 27.5% to 15%.

As a result, EU-based corporations recorded a positive change in new orders for August for the first time since May 2024, which pushed economic activity to its highest growth rate in 15 months despite weakened exports. That, however, was not enough to stop the continent’s biggest economy from shrinking, as Germany’s economy slowed by 0.3% in this year’s second quarter, compared to the first quarter—which is significantly worse than what was previously announced of US tariff effects on the country’s economy.

Third, the Japanese economy

The Japanese economy remains struggling on the interest rate front, with the need to cut rates in order for the economy to get stimulated and reduce sovereign debt costs—the highest in the world—while fearing inflation to pick up again.

On a positive note, Japan’s core inflation fell to 3.1% in July (from 3.3% in June), driven by lower rice prices, while the core measure excluding fresh food and energy remained at 3.4%.

Inflation remains above the 2% target, keeping it a key focus. The Bank of Japan raised its 2025 inflation forecast from 2.2% to 2.7%.

BoJ Governor Kazuo Ueda stated during Jackson Hole that raising the minimum wage will be imposed not only on big corporations, while considering raising wages even further with time in order to stimulate the labor market, signaling a positive outlook for a possible rate hike from the governor.

Meanwhile, Japanese exports recorded their lowest rates in four years amidst US tariffs, with exports decreasing by 2.6% in July, while Japanese car exports to the United States decreased by 28%, marking the country’s first trade deficit in months. The Tokyo CPI and unemployment rate will be released, with expectations of 2.5% for both.

Fourth, the Chinese economy

China’s GDP grew by 5.3% year-over-year in the first half of 2025, reaching CNY 66.05 trillion ($9.24 trillion), keeping it on track for its 5% 2025 target.

On the other hand, the Chinese economy showed signs of slowdown due to US tariffs, with industrial output rising by 5.7% in July, the slowest rate since November last year. While retail sales went down to 3.7% last month, from 4.8% in June. Housing prices continued to decline with limited domestic demand.

China’s GDP growth coincided with improved Chinese financial markets while recording new highs, driven by domestic investment incentives. The Premier called for bolder measures to boost consumption and investment, following concerning economic data from ongoing U.S. tariffs.

financial market: Economic calendar